The forward-looking statements are
contained principally in the sections entitled Risk Factors, Managements Discussion and Analysis of Financial Condition and Results of Operations and Business. In some cases, you can identify forward-looking
statements by the following words: may, will, could, would, should, expect, intend, plan, anticipate, believe,
estimate, predict, project, potential, continue, ongoing or the negative of these terms or other comparable terminology, although not all forward-looking statements contain
these words. These statements relate to future events or our future financial performance or condition and involve known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or
achievement to differ materially from those expressed or implied by these forward-looking statements. We discuss many of these risks, uncertainties and other factors in this Annual Report on
Form 10-K
in
greater detail under the heading Item 1A Risk Factors.
Given these risks, uncertainties and other factors, we urge you not
to place undue reliance on these forward-looking statements, which speak only as of the date of this report. You should read this Annual Report on
Form 10-K
completely and with the understanding that our
actual future results may be materially different from what we expect. For all forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.
We undertake no obligation to revise or update publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law.
Business Overview
We are a biotechnology company focused on precision medicine in oncology. Our goal is not just to shrink tumors, but to eradicate residual disease the
source of cancer relapse and recurrence in precisely defined patient populations. We are pursuing an integrated therapeutic, or Rx, and companion diagnostic, or Dx, strategy for treating cancer patients. Our Rx efforts are focused on
in-licensing
or acquiring, then developing and commercializing molecularly targeted therapies that, sequentially or in combination, are foundational for eradicating residual disease. Our Dx efforts aim to pair these
product candidates with biomarker-based companion diagnostics that are designed to precisely identify, at the molecular level, the patients who are most likely to benefit from the therapies we develop.
Our current pipeline includes the following compounds:
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entrectinib, formerly called
RXDX-101,
an orally bioavailable,
CNS-active,
small molecule tyrosine kinase inhibitor directed to the TRK
(tropomyosin receptor kinase) family tyrosine kinase receptors (TRKA, TRKB and TRKC), ROS1 and ALK (anaplastic lymphoma kinase)
proteins, which is in a Phase 2 clinical study, two Phase 1 clinical studies in molecularly defined adult patient
populations for the treatment of solid tumors, and a Phase 1/1b clinical study in pediatric patients with advanced solid tumor malignancies;
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RXDX-105,
an orally bioavailable, vascular endothelial growth factor receptor, or VEGFR, -sparing, small molecule tyrosine kinase inhibitor of RET, that has achieved clinical
proof-of-concept
and is in an ongoing Phase 1b clinical trial;
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taladegib, an orally bioavailable, small molecule hedgehog/smoothened antagonist that has achieved clinical
proof-of-concept
and a
recommended Phase 2 dose in a Phase 1 dose escalation trial; and
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RXDX-106,
a pseudo-irreversible, small molecule inhibitor of TYRO3, AXL and MER, or collectively TAM, and
c-MET
that is in late preclinical
development.
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A kinase is an enzyme that catalyzes the transfer of phosphate groups from high-energy, phosphate-donating molecules to
specific other molecules, called substrates. Tyrosine kinases transfer phosphate groups from adenosine triphosphate to cellular proteins and can function as an on/off switch for cellular functions, including cancer signaling. Cell
division is partly driven by protein kinases that regulate progression through the various phases of the cell division cycle.
We acquired exclusive
global development and commercialization rights to entrectinib under a license agreement with Nerviano Medical Sciences S.r.l., or NMS, that became effective in November 2013; we acquired our
RXDX-105
and
RXDX-106
development programs in an asset purchase transaction with Cephalon, Inc., an indirect wholly-owned subsidiary of Teva Pharmaceutical Industries Ltd., or Teva, in March 2015; and we acquired
exclusive, global development and commercialization rights to taladegib under a license agreement with Eli Lilly and Company, or Lilly, in November 2015.
In May 2016, we determined to prioritize our resources and development efforts on our lead product candidate, entrectinib. In connection with this, we
determined to discontinue our Spark discovery-stage program and are in discussions with Lilly regarding the optimal path forward for taladegib in the context of our pipeline priorities. In connection with these discussions Lilly has indicated that
it believes that we may not have satisfied certain of our obligations to Lilly under the license agreement, but Lilly has also indicated an interest in achieving an amicable resolution with respect to this issue and the parties are continuing
discussions consistent with this desire. We also have rights to
RXDX-107,
a new chemical entity comprising an alkyl ester of bendamustine encapsulated in human serum albumin, or HSA, to form nanoparticles; and
topical taladegib, a development program for the potential treatment of patients with superficial and nodular basal cell carcinoma. In February 2016, we announced that we had ceased all development activities relating to this program.
Our ability to identify innovative cancer targets and develop drugs against them is enabled by, and dependent on, a set of essential capabilities and the
experience of our management team. The members of our team have significant experience in medicinal chemistry, lead optimization, ADME & PK (the study of absorption, distribution, metabolism, excretion, and pharmacokinetics), preclinical
development and clinical development, and have collectively led or contributed to the development of multiple drugs approved by the U.S. Food and Drug Administration, or the FDA, including several cancer therapeutics. In addition, we have a
laboratory accredited by the College of American Pathologists, or CAP, and certified under the Clinical Laboratory Improvement Amendments of 1988, or CLIA, and our Trailblaze Pharos assay has been granted an investigational device exemption (IDE) by
the FDA. Our personnel use their expertise and our laboratory facilities with the goal of developing biomarker-based molecular assays to precisely define the patient populations in which we would test our product candidates, screen patients for
enrollment in our clinical trials and potentially perform commercial companion diagnostic testing should any of our product candidates and the associated companion diagnostic obtain marketing approval.
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Cancer Background
Cancer is a heterogeneous group of diseases characterized by uncontrolled cell division and growth. Cancerous cells that arise in the lymphatic system and bone
marrow are referred to as hematological tumors. Cancer cells that arise in other tissues or organs are referred to as solid tumors. Researchers believe that exposure to chemical agents, viruses and various forms of radiation can cause genetic
alterations that lead to cancer. Genetic predisposition also can increase the risk of cancer in some people. Epigenetic factors are also increasingly believed to contribute to development of cancer.
Cancer is the second leading cause of death in the United States, exceeded only by heart disease. The American Cancer Society, or ACS, estimates that, in
2017, there will be approximately 1.69 million new cases of cancer and approximately 601,000 deaths from cancer in the United States. The World Health Organization estimated that 8.8 million people worldwide died of cancer in 2015.
According to ACS data, breast, lung, prostate and colorectal cancer are the most prevalent cancers in the United States.
The most common methods of
treating patients with cancer are surgery, radiation and drug therapy. A cancer patient often receives treatment with a combination of these methods. Surgery and radiation therapy are particularly effective when the disease is localized. Physicians
generally use drug therapy when the cancer has spread beyond the primary site or cannot otherwise be treated through surgery. The goal of drug therapy is to damage and kill cancer cells or to interfere with the molecular and cellular processes that
control the development, growth and survival of cancer cells. In many cases, drug therapy entails the administration of several different drugs in combination. Over the past several decades, drug therapy has been evolving from
non-specific
drugs that kill both healthy and cancerous cells, to drugs that target specific molecular pathways or activating alterations involved in cancer and drugs that activate the bodys immune system to
destroy cancer cells.
Cytotoxic Chemotherapies
. The earliest approach to pharmacological cancer treatment was to develop drugs referred to as
cytotoxic drugs that kill rapidly proliferating cancer cells through
non-specific
mechanisms, such as deterring cell metabolism or causing damage to cellular components required for survival and rapid growth.
While these drugs have been effective in the treatment of some cancers, many unmet medical needs for the treatment of cancer remain. Also, cytotoxic drug therapies act in an indiscriminate manner, killing healthy, as well as cancerous, cells. Due to
their mechanism of action, many cytotoxic drugs have a narrow dose range above which the toxicity causes unacceptable or even fatal levels of damage to healthy cells and below which the drugs are not effective in eradicating cancer cells.
Targeted Therapies.
The next approach to pharmacological cancer treatment was to develop drugs, referred to as targeted therapeutics, that target
specific biological molecules in the human body that play a role in rapid cell growth and the spread of cancer. Targeted therapeutics are designed to preferentially kill cancer cells and spare normal cells, to improve efficacy and minimize side
effects. The drugs are designed to attack either a target that causes uncontrolled growth of cancer cells or a target on which cancer cells are more dependent for their growth than normal cells. These drugs focus on eradicating processes that help
the cancer cell survive. These drugs also affect oncogenes, which are the drivers or cause of the cancer itself.
Immunotherapies
. Cancer cells
contain mutated proteins and may overexpress other proteins normally found in the body at low levels. The immune system typically recognizes expression of these proteins, or antigens, and eliminates these cells in a highly efficient process known as
immune surveillance. Cancer cells ability to evade immune surveillance is a key factor in their growth, spread, and persistence. There has been substantial scientific progress in countering these evasion mechanisms using therapies that
activate the immune system to destroy tumor cells.
Strategy
We are a biotechnology company focused on precision medicine in oncology. Our goal is not just to shrink tumors, but to eradicate residual disease the
source of cancer relapse and recurrence in precisely defined patient populations through the application of our integrated Rx/Dx approach. Our Rx efforts are focused on
in-licensing
or acquiring, then
developing and commercializing molecularly targeted therapies that, sequentially or in combination, are foundational for eradicating residual disease. Our Dx efforts aim to pair these product candidates with biomarker-based companion diagnostics
that are designed to precisely identify, at the molecular level, the patients who are most likely to benefit from the therapies we develop. Key elements of our strategy are to:
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Employ efficient and flexible approaches to accelerate clinical development
. The members of our development leadership team have diverse experience working in resource-constrained environments and have a
successful history of identification, translation, development and regulatory approval of oncology products. These experiences provide our team with the knowledge to develop novel product candidates, and the ability to do so in a flexible and
capital-efficient fashion. We plan to pursue indications and select specific patient populations in which activity of our product candidates can be assessed in small
proof-of-concept
clinical trials that may lead to accelerated clinical development. When designing clinical trials, we seek to test multiple clinical hypotheses in a
single trial that can be accelerated once a signal of clinical benefit is observed. This approach may increase the likelihood of seeing results early in clinical trials with fewer patients, reducing our clinical development risk and development
costs, and allowing us to potentially accelerate the development of our product pipeline.
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Test our product candidates in the patients who we believe are most likely to derive benefit
. We plan to use biomarkers both to identify the drug targets that we wish to pursue, and to precisely define the
patient populations in which we would test those product candidates. If our product candidates demonstrate a therapeutic benefit in those specific molecularly defined patients, then, provided that we are able to complete appropriate clinical trials
and obtain regulatory approvals for those product candidates, we intend to use biomarkers to inform physicians which patients are strong candidates to be prescribed the applicable drugs.
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In-license
development candidates that meet our strict criteria
. In seeking to expand our pipeline from time to time, we intend to impose strict criteria in order to focus
on product candidates that we believe are differentiated from existing cancer therapeutics and that have well-defined, and potentially expeditious, clinical and regulatory pathways. Our criteria for selecting therapeutic product candidates for
in-license
or acquisition include consideration of the potential for the therapeutic to have
first-in-class
or
best-in-class
potential, and for diagnostics or specific clinical criteria that we believe would allow us to enrich our clinical study population with cancer patients who are
more likely to respond to the compound.
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Develop, or pursue relationships with third parties to develop, companion diagnostics to assist in identifying appropriate patients for any product candidates that we successfully commercialize.
We believe that
the availability of high quality companion diagnostics to help administer therapeutics to the most appropriate patients is essential. It is also important to incorporate biomarkers that we discover and utilize into a platform that can be used by
regulators, physicians, payors and, most importantly, patients themselves. A companion diagnostic is a test or measurement that evaluates the presence of biomarkers in a patient, which provides information that can then assist physicians in
selecting the specific drugs or treatments that may be most effective for that patient. We believe that any companion diagnostics that we develop through our laboratory facilities and related personnel, or that third parties develop through
relationships with us, could be used to select patients for late stage clinical testing, to inform regulators precisely which patients should be indicated for access to the therapeutics, to advise physicians and patients which individuals are good
candidates for treatment with the therapeutics, and to guide payors as to the value the therapeutics provide to well-defined patients and the circumstances under which the therapeutics should be reimbursed.
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Potentially leverage partnerships to develop our product candidates
. We may collaborate with third parties and partner certain rights to our product candidates as a means to accelerate their broader clinical
development and maximize their therapeutic and market potential. In any such collaboration, we would likely seek to retain certain key development and commercialization rights to our product candidates as a means of retaining strategic flexibility
to enable us to maximize shareholder value.
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Pipeline
Consistent with our strategy, we are seeking to develop our product candidates for precise biomarker-defined patient groups. Our product candidates are at
various stages of development, and we anticipate that it will be several years before any of our product candidates could be commercialized.
Entrectinib
Entrectinib is a new chemical entity
that we
in-licensed
from NMS. Entrectinib is an orally available,
CNS-active,
selective tyrosine kinase inhibitor of the TRK family tyrosine kinase receptors (TRKA, TRKB
and TRKC), ROS1 and ALK proteins. Entrectinib is designed as a targeted therapeutic candidate to treat patients with cancers that harbor activating alterations to
NTRK1
(encoding TRKA),
NTRK2
(encoding TRKB),
NTRK3
(encoding
TRKC),
ROS1
(encoding ROS1) or
ALK
(encoding ALK).
NTRK1
,
NTRK2
, and
NTRK3
may be collectively referred to as
NTRK
. TRKA, TRKB, and TRKC may be collectively referred to as TRK.
Rationale for Targeting TRKA, TRKB, TRKC, ROS1 and ALK
About TRK
. The TRK family of tyrosine kinase receptors, which includes TRKA, TRKB and TRKC, are activated by neurotrophins, a family of nerve growth
factors. The TRK family members play a key role in normal embryonic central neuronal cell development and differentiation and normal adult peripheral neuronal cell development and differentiation. Deregulated kinase activities of TRK family members
occur due to gene rearrangements and translocations, mutations, overexpression and alternative splicing and are associated with a number of human neuronal and
non-neuronal
cancers.
About ROS1
. ROS1 belongs to the insulin-receptor superfamily. Like other tyrosine kinase receptor molecules, it plays a role in relaying growth signals
from the environment outside the cell into the cells nucleus. ROS1 is one of two orphan receptor tyrosine kinase family members with no known binding ligand. Molecular rearrangements of ROS1 create fusion proteins with constitutively active
kinase domains that activate downstream signaling pathways, which lead to oncogenic properties in cells, including uncontrolled proliferation and resistance to cell death with increased tumor cell survival.
5
About ALK.
ALK also belongs to the insulin-receptor superfamily and is related to ROS1. Aberrant ALK
fusion proteins spontaneously form molecular structures that lead to self-activation and constitutive activity within cancer cells, via activation of signal transduction pathways and intracellular kinases that drive uncontrolled tumor cell growth,
metabolism and survival.
Incidence of NTRK1, NTRK2, NTRK3, ROS1 and ALK Alterations; Opportunity for Entrectinib
Research to date indicates that
NTRK
,
ROS1
and
ALK
gene rearrangements and fusion proteins are most prevalent in solid tumors. Each of
these genes also appears to be overexpressed in a portion of certain tumor types, though the importance of overexpression of these genes in cancer biology is not currently well understood.
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NTRK1, NTRK2
and
NTRK3
appear to be rearranged across a range of tumor types, including
non-small
cell lung cancer, colorectal adenocarcinoma, salivary gland cancer,
sarcoma, glioblastoma, astrocytoma, melanoma, papillary thyroid carcinoma cancer, breast cancer and cholangiocarcinoma, among other tumor types.
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ROS1
appears to be rearranged across a range of tumor types, including
non-small
cell lung adenocarcinoma, colorectal adenocarcinoma, cholangiocarcinoma, sarcoma,
glioblastoma, and melanoma, among other tumor types.
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ALK
appears to be rearranged across a range of tumor types, including
non-small
cell lung adenocarcinoma, colorectal adenocarcinoma, cholangiocarcinoma, sarcoma, and
papillary thyroid carcinoma, among other tumor types.
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The potential ability of entrectinib to act as a potent inhibitor of the TRKA, TRKB,
TRKC, ROS1 and ALK proteins, as well as its observed ability to be administered orally and reach systemic circulation, known as oral bioavailability, attracted us to the profile of this product candidate and support the market opportunity for the
product.
Phase 1 Clinical Trials
NMS initiated a
Phase 1 clinical trial in patients with solid tumors that are positive for alterations in TRKA, ROS1 or ALK. We assumed control of this trial, called the
ALKA-372-001
trial, from NMS in early 2014. This open label trial is currently ongoing at two clinical sites in Italy.
In the initial two dosing schedules, patients
received entrectinib for four consecutive days followed by three days without dosing. In the first such intermittent dosing schedule, patients received entrectinib in the fasted state for the first three weeks of each
28-day
dosing cycle, with no dosing during the fourth week. In the second intermittent dosing schedule, patients received entrectinib in the fed state four
days-on/three
days-off
without interruption. We are no longer enrolling patients using either intermittent dosing schedule. We are instead enrolling patients in a continuous dosing schedule, in which subjects are dosed
once-daily in a fed state for each day of every
28-day
dosing cycle.
In July 2014, we initiated a global Phase 1
clinical trial of entrectinib called
STARTRK-1,
which is the first of the Studies of Tumor Alterations Responsive to Targeting Receptor Kinases. This trial is a multicenter,
single-arm,
open-label clinical trial of oral entrectinib in adult patients with locally advanced or metastatic cancer confirmed to be positive for alterations to
NTRK
,
ROS1
or
ALK
. In this
trial subjects are dosed once-daily in the fed state on each day of every
28-day
dosing cycle.
Both trials were
designed to determine the maximum tolerated dose, or MTD, and/or recommended Phase 2 dose, or RP2D, as well as preliminary anti-cancer activity, of single agent entrectinib in patients with solid tumors with the relevant molecular alterations.
Updated results from the
ALKA-372-001
and
STARTRK-1
Phase 1 clinical trials were published in the journal
Cancer Discover
y in February 2017. As of the September 20, 2016, data cutoff for the publication, the findings showed:
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A total of 119 patients with a range of solid tumors had been dosed across both clinical trials, with 45 patients treated at the RP2D of 600 mg, taken orally once per day (QD). The publication represented the largest
published patient safety experience of any TRK inhibitor in clinical development.
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Entrectinib was well tolerated, with no responding patients discontinuing the study due to adverse events, or AEs, and no evidence of cumulative toxicity, renal or hepatic toxicity, or QTc prolongation.
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The majority of treatments-related AEs were Grade 1 or 2 in severity; Grade 3 events were reversible with dose modifications.
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Only one Grade 4 and no treatment related Grade 5 AEs were reported across the two studies.
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The most common treatment-related AEs of any grade were fatigue/asthenia, dysgeusia, parasthesias, nausea and myalgias.
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25 patients across both clinical trials met the expected Phase 2 eligibility criteria, which include the presence of
NTRK1
,
NTRK2
,
NTRK3
,
ROS1
or
ALK
fusions, as opposed to other types
of molecular alterations; the patient not having been previously treated with an ALK inhibitor or a ROS1 inhibitor; and treatment at or above the RP2D.
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In three patients with
NTRK1/2/3
-rearranged solid tumors
(non-small
cell lung cancer, or NSCLC, mammary analog secretory carcinoma, or MASC, and colorectal cancer) and with
Response Evaluation Criteria in Solid Tumors, or RECIST, -measurable disease, the objective response rate, or ORR, was 100%, including complete resolution of brain metastases in the patient with NSCLC. The durations of response were 2.6 months
(colorectal cancer), 4.6 months (MASC), and 15.1 months (NSCLC; patient treatment ongoing as of data cutoff date). An additional patient with an
NTRK1
-rearranged glioneuronal tumor experienced 60% reduction in tumor burden by
3-dimensional
volumetric assessment (stable disease by RECIST, which is not validated for primary brain tumors).
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An ORR of 86% was observed in 14 patients with
ROS1
-rearranged solid tumors (13 NSCLC patients, one melanoma patient), including two complete responses; an ORR of 85% was observed in the 13 patients with
ROS1
-rearranged NSCLC. A median duration of response of 17.4 months was seen for all ROS1-rearranged cancers, and among 13 patients with ROS1-rearranged NSCLC, the median duration of response was 17.3 months.
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In seven patients with
ALK
-rearranged solid tumors, the ORR was 57%, and responses were observed in
ALK
-rearranged NSCLC, renal cell carcinoma and colorectal cancer. A median duration of response of 7.4
months was seen for
ALK-rearranged
cancers.
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Phase 2 Clinical Trial
In September 2015, we initiated the
STARTRK-2
clinical trial of entrectinib. It is a global, multicenter, open label,
potentially registration-enabling Phase 2 clinical trial of entrectinib in multiple solid tumors that utilizes a basket design with screening of patient tumor samples for gene rearrangements of the relevant targets.
Diagnostic Technologies for Patient Identification
Multiple diagnostic technologies are available for measuring alterations in
NTRK1
/2/3,
ROS1
and
ALK
. There is an
FDA-approved
fluorescence in situ hybridization (FISH) test for measuring ALK translocations (Vysis, manufactured by Abbott Molecular). There is also a commercially available FISH test for measuring ROS1
translocations. In addition, ALK and ROS1 protein expression levels can also be measured by immunohistochemistry (IHC) using commercially available antibodies, including the
FDA-approved
companion diagnostic
assay for ALK from Ventana Medical Systems, Inc. Finally, several commercial, as well as academic, groups offer next generation sequencing-based methods for the detection of sequence mutations and gene translocations of
NTRK1
,
NTRK2
,
NTRK3
,
ROS1
and
ALK
.
We have evaluated each of these candidate diagnostic approaches, and we have developed a proprietary,
RNA-based
companion diagnostic next-generation screening, or NGS, assay, called Trailblaze Pharos, to be performed in our
CAP-accredited
and CLIA-certified diagnostic
laboratory. In August 2016, the FDA approved an investigational device exemption, or IDE, for our Trailblaze Pharos assay which is intended for use in identifying patients, including those who are
treatment-naïve,
who have solid tumors with
NTRK1/2/3
,
ROS1
, or
ALK
gene rearrangements leading to fusion proteins, to determine eligibility for enrollment into the global
STARTRK-2
clinical trial. In November 2016, the FDA also granted our request to review our Trailblaze Pharos companion diagnostic test service under the Expedited Access Pathway, or EAP, program. Our diagnostic
development team is also building upon our Trailblaze platform to detect molecular alterations of interest for our other targeted programs.
RXDX-105
RXDX-105
is a new chemical entity that we acquired in 2015 from
Teva.
RXDX-105
is an orally bioavailable, small molecule tyrosine kinase inhibitor with potent activity against RET that spares vascular endothelial growth factor, or VEGFR. We believe this program enables us
the potential for a
first-in-class
and
best-in-class
opportunity in
RET-driven
solid tumors.
Rationale for Targeting RET
About RET
. The RET proto-oncogene is a receptor tyrosine kinase that sits at the cell surface. When activated, it initiates downstream cellular
proliferation and survival pathways such as MAP kinase, PI3 kinase and PLC gamma. RET can be prone to gene rearrangements and other activating mutations that can cause autophosphorylation and become oncogenic drivers by constitutively activating
these downstream signaling pathways.
Phase 1/1b Clinical Trial
Teva initiated a Phase 1/1b dose escalation clinical trial which was designed to determine the MTD and/or RP2D, as well as preliminary anti-cancer activity, of
single agent
RXDX-105
in patients with advanced or metastatic solid tumors that were not selected based on any molecular alteration. We assumed control of this trial in
mid-2015.
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We announced data from this ongoing clinical trial in December 2016 at the 2016
EORTC-NCI-AACR
Molecular Targets and Cancer Therapeutics Symposium. As of the November 2016 data
cut-off
for the presentation, the findings showed:
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A total of 91 patients with a range of solid tumors were dosed in the clinical trial, with 55 patients treated in the Phase 1 study and 36 patient treated in the Phase 1b study.
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RXDX-105
continues to demonstrate a safety profile similar to what has been previously reported.
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The most frequent (>10% incidence) treatment-related AEs were rash, fatigue, diarrhea, nausea, hypophosphatemia, vomiting, muscle spasms and decreased appetite. The majority of treatment-related AEs were Grade 1 or
2, and were reversible with dose modification. The most common Grade 3 treatment-related AEs were rash, hypophosphatemia, and an increase in alanine aminotransferase, or ALT.
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One patient experienced a Grade 3 drug reaction with eosinophilia and systemic symptoms, in which the patient recovered with drug discontinuation. One patient experienced Grade 3 rash complicated by fatal alveolar
hemorrhage.
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Toxicities commonly associated with VEGFR inhibition, such as hypertension, hypothryroidism, proteinuria, and neutrotoxicity, were rarely observed.
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Of the 36 patient treated in the Phase 1b study, 35 had RET or BRAF molecular alterations.
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Nine RET
inhibitor-naïve
patients with RET fusion-positive tumors were treated at a daily dose of 275 mg or 350 mg in the fed state, and were evaluable for response.
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A preliminary ORR of 56% was observed in patients with RET fusion-positive solid tumors who were RET
inhibitor-naïve
(five out of nine treated patients had a RECIST
response). Of the five patients demonstrating a RECIST response, one patient with metastatic colorectal cancer (mCRC) achieved a complete response; three patients, all with NSCLC, achieved a partial response; and one patient with NSCLC had an
unconfirmed partial response.
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Among the seven patients with RET fusion-positive NSCLC who were RET inhibitor- naïve, three achieved a partial response and one achieved an unconfirmed response (a second scan had not been obtained at the date of
the data cutoff), for a preliminary ORR of 57%.
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Duration of response to
RXDX-105
ranged from 2+ to 7+ months, with all responder patients currently continuing on treatment in active response; median duration of response,
therefore, has not yet been determined.
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Additionally, a previously disclosed Phase 1 patient with
RET-mutated
M918T medullary thyroid cancer had a confirmed partial response and continues on treatment after 10 cycles.
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Among the remaining patients treated in Phase 1b who were either RET fusion-positive and received prior RET inhibitor treatments, or had BRAF molecular alterations, durable disease control but no objective responses
have been observed to date.
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These data demonstrated that
RXDX-105
was active across a range of different histologies, with confirmed RECIST responses observed in medullary thyroid cancer, NSCLC, and mCRC,
and across a range of RET molecular alterations, including the M918T point mutation, and CCDC6-, EML4-, and
PARD3-RET
fusions.
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Taladegib
Taladegib is a new chemical entity to
which we acquired rights from Lilly in 2015. Taladegib is an orally available, small molecule hedgehog/smoothened antagonist that has achieved clinical
proof-of-concept
and a recommended Phase 2 dose in a Phase 1 dose escalation trial.
Rationale for Targeting Hedgehog
The hedgehog pathway is a cell signaling pathway that transmits information to embryonic cells required for proper development. Dysregulated signaling can
arise from molecular alterations at multiple nodes in the pathway, which can lead to uncontrolled cell growth in multiple solid tumor types. Regulation of the pathway can be affected through modulation of multiple receptors, including the G
protein-coupled receptor smoothened.
Phase 1 Clinical Trial
Lilly initiated a Phase 1 clinical trial of oral taladegib in patients with solid tumors. This multicenter, dose escalation clinical trial was designed to
determine the MTD and RP2D, as well as preliminary anti-cancer activity, of single agent oral taladegib in patients with advanced or metastatic solid tumors. Patients were dosed once daily for 28 days. There were three phases to the study: a dose
escalation phase in patients with advanced cancer, a dose confirmation phase in patients with advanced cancer, and a disease expansion cohort in patients with locally advanced or metastatic basal cell carcinoma.
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Lilly presented interim results from this clinical trial in November 2015 at the 2015
EORTC-NCI-AACR
Symposium on Molecular Targets and Cancer Therapeutics. As of the data
cut-off
for the presentation, the findings
showed:
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A total of 84 patients with a range of solid tumors had been dosed, 47 of whom had advanced or metastatic basal cell carcinoma.
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The most frequent (>10% incidence) treatment-related AEs were dysgeusia, fatigue, nausea, muscle spasms and decreased appetite. Most toxicities were Grade 1 or 2, with 18 reported Grade 3 AEs. There were no Grade 4
or Grade 5 AEs reported. Dose limiting toxicity was seen at 600 mg, and the maximum tolerated dose was determined to be 400 mg, once daily.
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Among patients with advanced or metastatic basal cell carcinoma, the overall response rate in patients who were hedgehog inhibitor naïve was 69%, based on 11 responses out of 16 patients. The overall response rate
in patients who had previously received hedgehog inhibitor therapy was 38%, based on 11 responses out of 29 evaluable patients. Taking into account patients with stable disease, the percentage of patients who received clinical benefit from taladegib
treatment was 100% in the hedgehog inhibitor naïve patient subset and approximately 90% in the previously hedgehog inhibitor treated patient subset.
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In May 2016, we determined to prioritize our resources and development efforts on our lead product candidate, entrectinib, and are in
discussions with Lilly regarding the optimal path forward for taladegib in the context of our pipeline priorities. In connection with these discussions Lilly has indicated that it believes that we may not have satisfied certain of our obligations to
Lilly under the license agreement, but Lilly has also indicated an interest in achieving an amicable resolution with respect to this issue and the parties are continuing discussions consistent with this desire.
RXDX-106
RXDX-106
is a small molecule, pseudo-irreversible inhibitor of TYRO3, AXL and MER, or collectively TAM, and
c-MET
that is in late preclinical development.
Rationale for Targeting TAM and
c-MET
About TAM.
Numerous studies have shown that the TAM receptors play a critical, dual regulatory role in cancer. Aberrantly elevated TAM signaling is
associated with cancer progression, metastasis and drug resistance. At the same time, TAM receptors in diverse immune cells, such as macrophages, T cells, NK cells and dendritic cells, are key negative regulators of both innate and acquired
immunity. Thus, targeted inhibition of TAM receptors has emerged as a potential novel strategy for cancer treatment by not only impeding the tumorigenic, metastatic, and chemo-resistant capabilities of the tumor cells, but also by activating innate
and adaptive anti-tumor immune responses.
About
c-MET.
The
c-MET
pathway plays an important role in cancer development, progression and resistance to anti-EGFR and other targeted therapies. Particularly, molecular alterations that result in MET exon 14 skipping are found in lung cancer and other cancer types and
shown to confer sensitivity to MET inhibition.
License Agreements
November 2013 Agreement with NMS
We entered into a
license agreement with NMS on October 10, 2013, which was amended on October 25, 2013, became effective on November 6, 2013, and was amended December 12, 2014. The agreement grants us exclusive global rights to develop and
commercialize entrectinib, as well as a second product candidate,
RXDX-102.
As a result of the clinical results relating to entrectinib that we have seen to date, we designated
RXDX-102
as a
back-up
compound to entrectinib. Accordingly, we will not devote further development resources to
RXDX-102.
Our development rights under the license agreement are exclusive for the term of the agreement with respect to entrectinib and
RXDX-102
and also, as to NMS, are exclusive for a five-year period with respect to any product candidate with activity against the target proteins of entrectinib and
RXDX-102,
and include the right to grant sublicenses. We are obligated under the license agreement to use commercially reasonable efforts to develop and commercialize a product based on either or both of
entrectinib and
RXDX-102,
at our expense.
Under the terms of the license agreement, on November 6, 2013, we
issued to NMS a warrant to acquire up to 16,667 shares of our common stock, which has an exercise price of $6.00 per share and is exercisable at any time at the option of the holder until November 6, 2018. The terms of the license agreement
also provided for an
up-front
payment to NMS of $7.0 million. When and if commercial sales of a product based on either or both of entrectinib or
RXDX-102
begin, we
will be obligated to pay NMS tiered royalties ranging from a
mid-single
digit percentage to a low double digit percentage (between 10% and 15%) of our net sales, depending on the amount of our net sales, with
standard provisions for royalty offsets to the extent we obtain any rights from third
9
parties to commercialize the product. The license agreement also requires that we make development and regulatory milestone payments to NMS of up to $105.0 million in the aggregate if
specified clinical study initiations and regulatory approvals are achieved across multiple products or indications. Pursuant to the December 2014 amendment to the agreement, we paid the initial milestone payment of $10.0 million to NMS in
December 2014.
The license agreement with NMS will remain in effect until the expiration of all of our royalty and sublicense revenue payment obligations
to NMS. Those payment obligations commence after the first commercial sale of a product covered by the claims of any patent subject to the license agreement, and continue, on a
product-by-product
and
country-by-country
basis, through the longer of (i) the
expiration of the
last-to-expire
valid patent in such country with claims covering such product or (ii) 10 years after the first commercial sale of such product in
such country. The license agreement may be terminated under the following circumstances: (a) prior to the first commercial sale of a product covered by the agreement, if we provide NMS with 60 days prior written notice of our termination
of the agreement, (b) after the first commercial sale of any product covered by the agreement, if we provide NMS with three months prior written notice of our termination of the agreement (in which case NMS may then accelerate the
effective date of the termination to not less than 30 days after our notice), or (c) upon a material breach by either party under the agreement, which breach is not cured within 30 days with respect to payment defaults or within 60 days with
respect to any other breach (which cure period may be extended to up to 120 days for breaches other than payment defaults). As a result, if we fail to meet our payment or other obligations under the license agreement and are unable to cure any such
failure within the specified cure periods, NMS could terminate the license agreement and we would lose our rights to entrectinib and
RXDX-102.
Agreement with Daiichi Sankyo
In connection with our
March 2015 asset acquisition from Teva, we assumed all rights and obligations under the collaboration agreement dated November 3, 2006, as amended April 17, 2009, between Cephalon, Inc. and Daiichi Sankyo Company, Limited, or Daiichi
Sankyo, as
successor-in-interest
to Ambit Biosciences Corporation. The collaboration was for the purpose of identifying and developing clinical candidates that
demonstrate activity towards the two designated target kinases of the collaboration: the BRAF kinase and the AXL kinase. Under the agreement, both parties contributed certain intellectual property to the collaboration and agreed to a period of
exclusivity during which neither party would engage in any research related to a collaboration target compound with any third-party. The collaboration portion of the agreement ended in November 2009, but the agreement remains in effect on a
product-by-product,
country-by-country
basis until all royalty obligations expire. Both parties
have a right to terminate the agreement if the other party enters bankruptcy or upon an uncured breach by the other party. We may also terminate the agreement in our discretion upon 90 days written notice to Daiichi Sankyo.
We are solely responsible for worldwide clinical development and commercialization of collaboration compounds, which include
RXDX-105
and
RXDX-106,
subject to the option of Daiichi Sankyo, exercisable during certain periods following completion of the first
proof-of-concept
study in humans and only with our consent, to
co-develop
and
co-promote
RXDX-105.
If we decide to discontinue development of the
RXDX-105
program, we must give written notice to Daiichi Sankyo, which will have the right to assume control of
that program, subject to diligence obligations and payment of the milestones and royalties to us that would otherwise have been paid to Daiichi Sankyo had we maintained responsibility for the program.
The agreement requires us to make development, regulatory and sales milestone payments to Daiichi Sankyo of up to $44.5 million in the aggregate for
RXDX-105,
and up to $47.5 million in the aggregate for
RXDX-106.
When and if commercial sales of a product based on either of
RXDX-105
or
RXDX-106
begin, we will be obligated to pay Daiichi Sankyo tiered royalties ranging from a
mid-single
digit
percentage to a low double digit percentage of net sales, depending on annual amounts of net sales, with standard provisions for royalty offsets to the extent we are required to obtain any rights from third parties to commercialize either
RXDX-105
or
RXDX-106.
Royalties are payable to Daiichi Sankyo on a
product-by-product,
country-by-country
basis beginning on the date of the first commercial sale in a country and ending on the later of 10 years after the date of such sale in that country or the
expiration date of the last to expire patent subject to the agreement covering the product in that country.
Agreement with Lilly
On November 6, 2015, we entered into a license, development and commercialization agreement with Lilly, pursuant to which we received exclusive, global
rights to develop and commercialize pharmaceutical products under certain licensed technology, including the oral and topical forms of the product candidate taladegib. We granted back to Lilly an exclusive license to develop and commercialize
pharmaceutical products comprising taladegib in combination with certain other molecules.
We are obligated under the agreement to use commercially
reasonable efforts to develop and commercialize pharmaceutical products utilizing the licensed technology, at our expense.
The agreement provided for an
up-front
payment by us to Lilly of $2.0 million and the issuance by us to Lilly in a private placement of 1,213,000 unregistered shares of our common stock. When and if commercial sales of products we develop
under the license begin, we will be obligated to pay Lilly a
mid-single
digit royalty based on net sales. When and if commercial sales of combination products developed by Lilly under the grant-back license
begin, Lilly will be obligated to pay us a royalty of net sales. Both parties royalty obligations are subject to standard provisions for royalty offsets to the extent a party is required to obtain any rights from third
10
parties to commercialize the applicable products, or in the event of loss of exclusivity or generic competition. The agreement also requires that we make development and sales milestone payments
to Lilly of up to $38.0 million. We may elect to pay a portion of such amounts by issuing to Lilly shares of our common stock in a private placement, subject to certain conditions.
Unless terminated earlier, the agreement will remain in effect, on a
country-by-country
and
product-by-product
basis, until the parties royalty
obligations end. Each party has a right to terminate the agreement if the other party enters bankruptcy, upon an uncured breach by the other party or if the other party challenges its patents relating to the licensed technology.
Competition
The pharmaceutical and biotechnology
industries are characterized by rapidly advancing technologies, intense competition and a strong emphasis on proprietary products. While we believe that our technology, development experience, scientific knowledge and strategies provide us with
competitive advantages, we face competition from many different sources, including major pharmaceutical, specialty pharmaceutical and biotechnology companies, academic institutions and governmental agencies and public and private research
institutions. Any product candidates that we are able to successfully develop and commercialize will compete with existing therapies and new therapies that may become available in the future. Our competitors may develop or market products or other
novel technologies that are more effective, safer, more convenient or less costly than any that may be commercialized by us, or may obtain regulatory approval for their products more rapidly than we may obtain approval for ours.
The acquisition or licensing of pharmaceutical products is also very competitive, and a number of more established companies, some of which have acknowledged
strategies to license or acquire products and many of which are bigger than us and have more institutional experience and greater cash flows than we have, may have competitive advantages over us, as may other emerging companies taking similar or
different approaches to product licenses and/or acquisitions. In addition, a number of established research-based pharmaceutical and biotechnology companies may acquire products in late stages of development to augment their internal product lines,
which may provide those companies with an even greater competitive advantage.
Many of our competitors will have substantially greater financial,
technical and human resources than we have. Mergers and acquisitions in the pharmaceutical industry may result in even more resources being concentrated in some of our competitors. Competition may increase further as a result of advances made in the
commercial applicability of technologies and greater availability of capital for investment in these fields. Our success will be based in part on our ability to build, obtain regulatory approval for and market acceptance of, and actively manage, a
portfolio of drugs that addresses unmet medical needs and creates value in patient therapy.
We compete in the segments of the pharmaceutical,
biotechnology and other related markets that pursue precision medicine approaches to combatting activating molecular alterations in cancer. There are a number of other companies presently working to develop therapies for cancer in the field of
precision medicines, including divisions of large pharmaceutical companies, and pharmaceutical and biotechnology companies of various sizes.
The most
common methods of treating patients with cancer are surgery, radiation and drug therapy, or a combination of such methods. There are a variety of available drug therapies marketed for cancer. In many cases, these drugs are administered in
combination to enhance efficacy. While our product candidates, if any are approved, may compete with these existing drug and other therapies, to the extent they are ultimately used in combination with or as an adjunct to these therapies, our product
candidates may not be competitive with them. Some of the currently approved drug therapies are branded and subject to patent protection, and others are available on a generic basis. Many of these approved drugs are well established therapies and are
widely accepted by physicians, patients and third-party payers. As a result, obtaining market acceptance of, and a gaining significant share of the market for, any of our product candidates that we successfully introduce to the market will pose
challenges.
In addition to currently marketed therapies, there are also a number of medicines in late stage clinical development to treat cancer. These
medicines in development may provide efficacy, safety, convenience and other benefits that are not provided by currently marketed therapies and may not be provided by any of our current or future product candidates. As a result, they may provide
significant competition for any of our product candidates.
With respect to entrectinib, we are aware that Loxo Oncology is developing larotrectnib
(LOXO-101)
for patients with
TRK-positive
solid tumors, and has initiated a Phase 2 basket trial in adult cancer patients whose tumors harbor TRK fusions and a Phase 1/1b
trial in pediatric cancer patients. We are also aware of three agents that have been approved by the FDA for
ALK-positive
NSCLC Pfizers
Xalkori
®
/crizotinib, Novartis Zykadia
®
/ceritinib and Roches
Alecensa
®
/alectinib. Alectinib is also approved for this indication in Japan. In addition, we are aware that Pfizers
Xalkori
®
/crizotinib has also been approved by the FDA for ROS1-positive NSCLC.
With respect to
taladegib, we are aware of two agents that have been approved by the FDA to treat basal cell carcinoma and are designed to selectively inhibit the hedgehog pathway by binding the smoothened protein: Genentechs Erivedge
®
/vismodegib and Novartis Odomzo
®
/sonidegib.
11
We are also aware of several other products in development targeting TRKA, TRKB, TRKC, ROS1, ALK,
Hedgehog/Smoothened, RET, TYRO3, AXL, MER and/or
c-MET
for the treatment of cancer, some of which may be in a more advanced stage of development than our product candidates. There are also many other compounds
directed to other molecular targets that are in clinical development by a variety of companies to treat cancer types that we may choose to pursue with our programs.
Commercialization
We have not yet established
significant sales, marketing or product distribution infrastructure. For any of our product candidates for which we may in the future receive marketing approvals, we may seek to commercialize the product ourselves or to avail ourselves of commercial
capabilities through one or more collaborations. In any such collaboration, we would likely seek to retain certain commercialization rights to our product candidates as a means of retaining strategic flexibility to enable us to maximize shareholder
value.
To the extent that we internally develop and obtain regulatory approval for commercial companion diagnostics for use with our therapeutic
products, we may market and sell those diagnostics through our own sales and marketing teams or we may seek a commercialization partner. To the extent we collaborate in the future with any third parties on the development of any commercial companion
diagnostics for use with our therapeutic products, such third parties will most likely hold the commercial rights to those diagnostic products. We expect that we would coordinate closely with any future diagnostic collaborators in connection with
the marketing and sale of such diagnostic products and our related therapeutic products.
Manufacturing
We do not own or operate, and currently have no plans to establish, any manufacturing facilities. We currently rely, and expect to continue to rely, on third
parties for the manufacture of our product candidates for preclinical and clinical testing, as well as for commercial manufacture of any products that we may commercialize. We have a limited number of supply arrangements for entrectinib, and we are
currently reliant on a single contract manufacturer for the clinical supply of
RXDX-105.
In addition, we have only a limited clinical supply of taladegib, and we must seek to establish clinical supply
agreements with third parties for future supplies. We do not currently have arrangements in place for commercial supply of bulk drug substance or drug products. For all of our product candidates, we plan to identify and qualify manufacturers to
provide the active pharmaceutical ingredient and
fill-and-finish
services prior to submission of a new drug application, or NDA, to the FDA.
We believe that all of our product candidates can be manufactured in reliable and reproducible synthetic processes from readily available materials. We
believe that the chemistry is amenable to
scale-up
and does not require unusual or expensive equipment in the manufacturing process. We expect to continue to develop product candidates that can be produced
cost-effectively at contract manufacturing facilities.
We generally expect to rely on third parties for the manufacture of any companion diagnostics we
or our collaborators may develop.
Intellectual Property
Our commercial success depends in part on our ability to obtain and maintain proprietary or intellectual property protection for our product candidates and our
core technologies, to operate without infringing any intellectual property rights of others and to prevent others from infringing our proprietary or intellectual property rights. We expect that we will seek to protect our proprietary and
intellectual property position by, among other methods, licensing or filing our own U.S. and foreign patent applications related to our proprietary technology, inventions and improvements that are important to the development and implementation of
our business. We also rely on trade secrets,
know-how
and continuing technological innovation to develop and maintain our proprietary and intellectual property position, which we generally seek to protect
through trade secret law and contractual obligations with third parties.
We currently, and expect that we will continue to, file or license patent
applications directed to our key product candidates in an effort to establish intellectual property positions regarding the new chemical entities utilized in these product candidates, as well as uses of these chemical entities in the treatment of
various cancers. We also may seek patent protection, if available, with respect to biomarkers and diagnostic methods that may be useful in selecting the right patient population for use of any of our product candidates.
Our license agreements relating to our entrectinib,
RXDX-105,
and taladegib development programs grant us exclusive,
worldwide licenses under a portfolio of patents and patent applications directed to the licensed development programs. We own the rights to composition of matter patents and patent applications directed to our
RXDX-106
and
RXDX-107
programs. The composition of matter patents in the United States expire in 2029 for the issued patent relating to entrectinib, in 2030 for the
issued patent relating to
RXDX-105,
in 2032 for the issued patent relating to
RXDX-106,
in 2033 for the issued patent relating to
RXDX-107,
and in 2031 for the issued patent relating to taladegib.
We plan to continue to expand our intellectual
property portfolio by filing patent applications in the United States and internationally for novel compositions of matter that we may develop covering our compounds, the chemistries and processes for manufacturing these compounds, the use of these
compounds in a variety of therapies and potentially for the use of biomarkers for patient selection for
12
these compounds. Of course, these or other patent applications that we may file or license from third parties may not issue as patents, and any issued patents may have claims that are
substantially more limited than the patents disclosure. Any issued claims may be of a scope that may reduce their value and/or may be challenged, invalidated or circumvented. See Risk FactorsRights Related to Our Intellectual
Property.
In addition to patents, we have registered trademarks in the United States for
Ignyta
®
, the Ignyta word mark and design, the Ignyta design, Methylome
®
, and
Trailblaze
®
, and have pending trademark applications in the United States for Ignyta, the Ignyta word mark and design, the Ignyta design, Oncolome, Pharos, Trailblaze,
Trailblaze Pharos and Trailblaze Pharos and design. We have registered trademarks in the European Union, or EU, for Ignyta
®
, the Ignyta design, Methylome
®
, Oncolome
®
, Pharos
®
,
Trailblaze
®
, Trailblaze Pharos
®
and Trailblaze Pharos and design. We also rely upon unpatented trade secrets and
know-how
and continuing technological innovation to develop and maintain our competitive position. We seek to protect our proprietary information, in part, using confidentiality agreements with our collaborators,
scientific advisors, employees and consultants, and invention assignment agreements with our employees and selected consultants, scientific advisors and collaborators. The confidentiality agreements are designed to protect our proprietary
information and, in the case of agreements or clauses requiring invention assignment, to grant us ownership of technologies that are developed through a relationship with a third party.
Government Regulation
Government authorities in the
United States, at the federal, state and local level, and in other countries, extensively regulate, among other things, the research, development, testing, manufacture, including any manufacturing changes, packaging, storage, recordkeeping,
labeling, advertising, promotion, distribution, marketing, post-approval monitoring and reporting, import and export of pharmaceutical products, such as those we are developing.
United States Drug Approval Process
In the United
States, the FDA regulates drugs under the Federal Food, Drug, and Cosmetic Act, or the FDCA, and implementing regulations. The process of obtaining regulatory approvals and the subsequent compliance with appropriate federal, state, local and foreign
statutes and regulations requires the expenditure of substantial time and financial resources. Failure to comply with the applicable United States requirements at any time during the product development process, approval process or after approval,
may subject an applying company to a variety of administrative or judicial sanctions.
The process required by the FDA before a drug may be marketed in
the United States generally involves the following:
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completion of preclinical laboratory tests, animal studies and formulation studies in compliance with good laboratory practice, or GLP, regulations;
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submission to the FDA of an IND, which must become effective before human clinical trials may begin;
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approval of each phase of the proposed clinical trials and related informed consents by an institutional review board, or IRB, at each clinical site where such trial will be performed;
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performance of adequate and well-controlled human clinical trials in accordance with good clinical practice, or GCP, standards and regulations to establish the safety and efficacy of the proposed drug for each
indication;
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submission to the FDA of an NDA;
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satisfactory completion of an FDA inspection of the manufacturing facility or facilities at which the product is produced to assess compliance with current good manufacturing practice, or cGMP, requirements and to
assure that the facilities, methods and controls are adequate to preserve the drugs identity, strength, quality and purity; and
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FDA review and approval of the NDA.
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Preclinical Studies and IND
Preclinical studies include laboratory evaluation of product chemistry and formulation, as well as
in vitro
and animal studies to assess the potential
for AEs and, in some cases, to establish a rationale for therapeutic use. The conduct of preclinical studies is subject to federal regulations and requirements, including GLP regulations for safety/toxicology studies. An IND sponsor must submit the
results of the preclinical tests, together with manufacturing information, analytical data, any available clinical data or literature and plans for clinical trials, among other things, to the FDA as part of an IND. Some long-term preclinical
testing, such as animal tests of reproductive AEs and carcinogenicity, may continue after the IND is submitted. An IND automatically becomes effective 30 days after receipt by the FDA, unless before that time the FDA raises concerns or questions
related to one or more proposed clinical trials and places the trial on clinical hold. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. As a result, submission of an IND may not
result in the FDA allowing clinical trials to commence.
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Clinical Trials
Clinical trials involve the administration of the investigational new drug to human subjects under the supervision of qualified investigators in accordance
with GCP requirements, which include, among other things, the requirement that all research subjects provide their informed consent in writing before their participation in any clinical trial. Clinical trials are conducted under written protocols
detailing, among other things, the objectives of the trial, the parameters to be used in monitoring safety, and the safety and effectiveness criteria to be evaluated. A protocol for each clinical trial and any subsequent protocol amendments must be
submitted to the FDA as part of the IND. In addition, an IRB at each institution participating in the clinical trial must review and approve the plan for any clinical trial before it commences at that institution, and the IRB must conduct continuing
review. The IRB must review and approve, among other things, the study protocol and informed consent information to be provided to study subjects. An IRB must operate in compliance with FDA regulations. In addition, a sponsor must provide
information regarding most clinical trials to be disclosed on http://clinicaltrials.gov, a website maintained by the National Institutes of Health.
Human
clinical trials are typically conducted in three sequential phases that may overlap or be combined:
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Phase 1: The drug is initially introduced into healthy human subjects or patients with the target disease or condition and tested for safety, dosage tolerance, absorption, metabolism, distribution, excretion and, if
possible, to gain an early indication of its effectiveness.
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Phase 2: The drug is administered to a limited patient population to identify possible adverse effects and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted diseases and to
determine dosage tolerance and optimal dosage.
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Phase 3: The drug is administered to an expanded patient population in adequate and well-controlled clinical trials to generate sufficient data to statistically confirm the efficacy and safety of the product for
approval for specified indications, to establish the overall risk-benefit profile of the product and to provide adequate information for the labeling of the product.
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Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA, and more frequently if serious AEs occur. The
FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of a
clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRBs requirements or if the drug has been associated with unexpected serious harm to patients.
Pursuant to the 21st Century Cures Act, which was enacted on December 13, 2016, the manufacturer of an investigational drug for a serious or
life-threatening disease is required to make available, such as by posting on its website, its policy on evaluating and responding to requests for expanded access. This requirement applies on the later of 60 days after the date of enactment or the
first initiation of a Phase 2 or Phase 3 trial of the investigational drug.
Marketing Approval
Assuming successful completion of the required clinical testing, the results of the preclinical studies and clinical trials, together with detailed information
relating to the products chemistry, manufacture, controls and proposed labeling, among other things, are submitted to the FDA as part of an NDA requesting approval to market the product for one or more indications. Under federal law, the
submission of most NDAs is subject to a substantial application user fee.
The FDA generally conducts a preliminary review of all NDAs to determine if
they are sufficiently complete to permit substantive review within the first 60 days after submission before accepting them for filing. The FDA may request additional information in connection with this preliminary review rather than accept an NDA
for filing. In this event, the application must be resubmitted with the additional information. The resubmitted application is subject to further review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins
an
in-depth
substantive review. The FDA has agreed to specified performance goals in the review of NDAs. Under these goals, the FDA has committed to review most such applications for
non-priority
products within 10 months, and most applications for priority review products, that is, drugs that the FDA determines represent a significant improvement over existing therapy, within six months. The
FDA may also refer applications for novel drugs or products that present difficult questions of safety or efficacy to an advisory committee, typically a panel that includes clinicians and other experts, for review, evaluation and a recommendation as
to whether the application should be approved. The FDA is not bound by the recommendations of an advisory committee, but it considers such recommendations carefully when making decisions. The FDA is not required to adhere its review time goals, and
its review could experience delays that cause those goals to not be met.
Before approving an NDA, the FDA typically will inspect the facility or
facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and are adequate to assure consistent production of
the product within required specifications. In addition, before approving an NDA, the FDA will typically inspect one or more clinical sites to assure compliance with GCP and integrity of the clinical data submitted.
14
The testing and approval process for each product candidate requires substantial time, effort and financial
resources, and each may take many years to complete. Data obtained from preclinical and clinical activities are not always conclusive and may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval. The FDA
may not grant approval of an application for a product candidate on a timely basis, or at all. Further, applicants often encounter difficulties or unanticipated costs in their efforts to develop product candidates and secure necessary governmental
approvals, which could delay or preclude the marketing of those products.
After the FDAs evaluation of the NDA and inspection of the manufacturing
facilities, the FDA may issue an approval letter or a complete response letter. An approval letter authorizes commercial marketing of the drug with specific prescribing information for specific indications. A complete response letter generally
outlines the deficiencies in the submission and may require substantial additional testing or information in order for the FDA to reconsider the application. If and when those deficiencies have been addressed to the FDAs satisfaction in a
resubmission of the NDA, the FDA may then issue an approval letter. The FDA has committed to reviewing such resubmissions in two or six months depending on the type of information included. Even with submission of this additional information, the
FDA ultimately may decide that the application does not satisfy the regulatory criteria for approval and refuse to approve the NDA.
Programs for
Expedited Review and Approval
The FDA has developed certain programs and designations that enable NDAs for product candidates meeting specified
criteria to be eligible for certain expedited review and approval processes such as fast track designation, priority review, accelerated approval, and breakthrough therapy designation. Even if a product qualifies for one or more of these programs,
the FDA may later decide that the product no longer meets the conditions for qualification or decide that the time period for FDA review or approval will not be shortened.
Fast Track Designation
. The FDA is required to facilitate the development and expedite the review of drugs that are intended for the treatment of a
serious or life-threatening condition for which there is no effective treatment and that demonstrate the potential to address unmet medical needs for the condition. Under the fast track program, the sponsor of a new product candidate may request the
FDA to designate the product for a specific indication as a fast track product concurrent with or after the submission of the IND for the product candidate. The FDA must determine if the product candidate qualifies for fast track designation within
60 days after receipt of the sponsors request.
In addition to other benefits, such as the ability to use surrogate endpoints (see the description
of surrogate endpoints under Accelerated Approval below) and have greater interactions with the FDA, the FDA may initiate review of sections of a fast track products NDA before the application is complete. This rolling review
is available if the applicant provides and the FDA approves a schedule for the submission of the remaining information and the applicant pays applicable user fees. However, the FDAs review time goal for a fast track application does not begin
until the last section of the NDA is submitted. In addition, the fast track designation may be withdrawn by the FDA if the FDA believes that the designation is no longer supported by data emerging in the clinical trial process.
Priority Review
. Under FDA policies, a product candidate may be eligible for priority review, or review generally within a
six-month
timeframe from the time a complete application is accepted for filing. Products regulated by the FDAs Center for Drug Evaluation and Research are eligible for priority review if they provide a
significant improvement compared to marketed products in the treatment, diagnosis or prevention of a disease. A fast track designated product candidate would ordinarily meet the FDAs criteria for priority review.
Under the FDAs Rare Pediatric Disease Priority Review Voucher program, upon the approval of a qualifying NDA or biologics license application, or BLA,
for the treatment of a rare pediatric disease, the sponsor of such application would be eligible for a Pediatric Disease Priority Review Voucher that can be used to obtain priority review for a subsequent NDA or BLA. The FDA defines a rare
pediatric disease as a disease that (1) is a serious or life-threatening disease in which the serious or life-threatening manifestations primarily affect individuals aged from birth to 18 years, including age groups often called neonates,
infants, children, and adolescents and (2) is a rare disease or condition within the meaning of the Orphan Drug Act (i.e., it affects fewer than 200,000 individuals in the U.S.). The FDA has granted us rare pediatric disease designation for
entrectinib for the treatment of neuroblastoma.
Accelerated Approval
. Under the FDAs accelerated approval regulations, the FDA may approve a
drug for a serious or life-threatening illness that provides meaningful therapeutic benefit to patients over existing treatments based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that
can be measured earlier than irreversible morbidity or mortality that is reasonably likely to predict an effect on irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the
condition and the availability or lack of alternative treatments. In clinical trials, a surrogate endpoint is a marker, such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical
benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or sooner than clinical endpoints. A product candidate approved on this basis is subject to rigorous post-marketing compliance
requirements, including the completion of Phase 4 or post-approval clinical trials to validate the surrogate endpoint or otherwise
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confirm the effect on the clinical endpoint. Failure to conduct required post-approval studies, or to confirm a clinical benefit during post-marketing studies, would allow the FDA to withdraw the
drug from the market on an expedited basis. All promotional materials for product candidates approved under accelerated regulations are subject to prior review by the FDA.
Breakthrough Therapy Designation
. A sponsor can request designation of a product candidate as a breakthrough therapy. A breakthrough
therapy is defined as a drug that is intended, alone or in combination with one or more other drugs, to treat a serious or life-threatening disease or condition, and preliminary clinical evidence indicates that the drug may demonstrate substantial
improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects observed early in clinical development. Drugs designated as breakthrough therapies are also eligible for accelerated approval.
The FDA must take certain actions, such as holding timely meetings and providing advice, intended to expedite the development and review of an application for approval of a breakthrough therapy.
Additional Regulatory Designations and Alternative Approval Pathways
In addition to the expedited review and approval programs and designations, the FDA also recognizes certain other designations and alternative approval
pathways that afford certain benefits, such as the orphan drug designation and alternative types of NDAs under the Hatch-Waxman Act.
Orphan Drugs
.
Under the Orphan Drug Act, the FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition, which is generally defined as a disease or condition that affects fewer than 200,000 individuals in the United States.
Orphan drug designation must be requested before submitting an NDA. The FDA has granted us orphan drug designation for entrectinib for the treatment of neuroblastoma and for the treatment of TRKA-positive, TRKB-positive, TRKC-positive, ROS1-positive
or
ALK-positive
non-small
cell lung cancer and colorectal cancer. After the FDA grants orphan drug designation, the generic identity of the drug and its potential orphan
use are disclosed publicly by the FDA. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.
The first NDA applicant to receive FDA approval for a particular active moiety to treat a particular disease with FDA orphan drug designation is entitled to a
seven-year exclusive marketing period in the United States for that product and for that indication. During the seven-year exclusivity period, the FDA may not approve any other applications to market the same drug for the same orphan indication,
except in limited circumstances, such as a showing of clinical superiority to the product with orphan drug exclusivity, such that it is shown to be safer, more effective or makes a major contribution to patient care. Orphan drug exclusivity does not
prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. Among the other benefits of orphan drug designation are tax credits for certain research and a waiver of the
NDA application user fee.
The Hatch-Waxman Act: Abbreviated New Drug Applications
. In seeking approval for a drug through an NDA, applicants are
required to list with the FDA each patent with claims that cover the applicants product or a method of using the product. Upon approval of a drug, each of the patents listed in the application for the drug is then published in the FDAs
Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the Orange Book. A drug listed in the Orange Book may, in turn, function as a reference listed drug, or RLD, and be cited by potential competitors in support of
approval of an abbreviated new drug application, or ANDA. Generally, an ANDA provides for marketing of a drug product that has the same active ingredients in the same strengths, dosage form and route of administration as the RLD and has been shown
to be bioequivalent through
in vitro
or
in vivo
testing or otherwise to the RLD. ANDA applicants are not required to conduct or submit results of preclinical or clinical tests to prove the safety or effectiveness of their proposed ANDA
drug product, other than the requirement for bioequivalence testing. Drugs approved in this way are commonly referred to as generic equivalents to the RLD, and can be and are often substituted by pharmacists under prescriptions written
for the RLD.
The ANDA applicant is required to certify to the FDA concerning any patents listed for the RLD in the Orange Book, except for patents
covering methods of use of the RLD for which the ANDA applicant is not seeking FDA approval. Specifically, the applicant must certify with respect to each Orange Book-listed patent that:
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the required patent information has not been filed;
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the listed patent has expired;
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the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or
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the listed patent is invalid, unenforceable or will not be infringed by the proposed ANDA product.
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certification that the proposed ANDA product will not infringe the patents listed for the RLD or that such patents are invalid or unenforceable is called a Paragraph IV certification. If the ANDA applicant does not challenge the Orange Book-listed
patents or indicate that it is not seeking FDA approval of a method of use covered by a patent listed in the Orange Book for the RLD, the ANDA application will not be approved until all the Orange Book-listed patents for the RLD have expired.
If the ANDA applicant has provided a Paragraph IV certification to the FDA with respect to one or more patents listed in the Orange Book for the RLD, the ANDA
applicant must also send notice of the Paragraph IV certification to the NDA holder for the RLD and
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the owner(s) of the Orange Book-listed patents for the RLD after the ANDA has been accepted for filing by the FDA. The NDA and patent owners may then initiate a patent infringement lawsuit
against the ANDA applicant in response to the notice of the Paragraph IV certification. The filing of such a patent infringement lawsuit within 45 days after the receipt of a Paragraph IV notice automatically prevents the FDA from approving the ANDA
until the earlier of 30 months, expiration of the patent, settlement of the lawsuit or a decision in the infringement case that is favorable to the ANDA applicant.
The ANDA also will not be approved until any applicable
non-patent
exclusivity periods, such as exclusivity for
obtaining approval of a new chemical entity, applicable to the RLD have expired. Federal law provides a period of five years following FDA approval of a RLD containing a new active moiety, during which time an ANDA for a generic version of the RLD
cannot be filed with the FDA, unless the ANDA contains a Paragraph IV certification to an Orange Book-listed patent for the RLD, in which case the ANDA may be filed with the FDA four years following approval of the RLD. Federal law provides for a
period of three years of exclusivity during which the FDA cannot grant effective approval of an ANDA if the RLD contains a previously approved active moiety and the application contained data from new clinical studies (other than bioavailability
studies) conducted or sponsored by the sponsor that were essential to the approval of the application. This three-year exclusivity period often protects new drug products that contain a previously approved active moiety, such as a new dosage form,
route of administration, combination or indication. Under the Best Pharmaceuticals for Children Act, federal law also provides that periods of patent and
non-patent
marketing exclusivities listed in the Orange
Book for a RLD may be extended by six months if the NDA sponsor conducts pediatric studies identified by the FDA in a written request. If such a written request is issued by the FDA, the FDA must grant pediatric exclusivity no later than six months
prior to the date of expiration of patent or
non-patent
exclusivities in order for the
six-month
pediatric extension to apply to those exclusivity periods.
The Hatch-Waxman Act: Section
505(b)(2) New Drug Applications
. Most drug products obtain FDA marketing approval pursuant to an NDA
or an ANDA. A third alternative is a special type of NDA, commonly referred to as a Section 505(b)(2) NDA, which enables the applicant to rely, in part, on the FDAs prior findings of safety and efficacy for an approved product that is a
RLD, or published literature, in support of its application.
Section 505(b)(2) NDAs often provide an alternate path to FDA approval for new or
improved formulations or new uses of drugs containing previously approved active moieties. Section 505(b)(2) permits the filing of an NDA where at least some of the information required for approval comes from studies not conducted by or for
the applicant and for which the applicant has not obtained a right of reference. If the Section 505(b)(2) applicant can establish that reliance on the FDAs previous approval is scientifically appropriate, it may eliminate the need to
conduct certain preclinical or clinical studies of the new product. The FDA may also require companies to perform additional studies or measurements to support the change from the approved product. The FDA may then approve the new product candidate
for all or some of the label indications for which the RLD has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant.
To the extent that the Section 505(b)(2) applicant is relying on studies conducted for an RLD, the applicant is required to certify to the FDA concerning
any patents listed in the Orange Book for the RLD to the same extent that an ANDA applicant would. As a result, approval of a Section 505(b)(2) NDA may be delayed until all the Orange Book-listed patents relating the RLD have expired, until any
non-patent
exclusivities, such as exclusivity for obtaining approval of a new active moiety, listed in the Orange Book for the RLD have expired, and, in the case of a Paragraph IV certification and subsequent
patent infringement suit, until the earlier of 30 months, settlement of the lawsuit or a decision in the infringement case that is favorable to the Section 505(b)(2) applicant.
Combination Products
The FDA regulates combinations of
products that cross FDA centers, such as drug, biologic or medical device components that are physically, chemically or otherwise combined into a single entity, as a combination product. The FDA center with primary jurisdiction for the combination
product will take the lead in the premarket review of the product, with the other center consulting or collaborating with the lead center. The 21st Century Cures Act, or Cures Act, amended the provisions of the FDCA relating to the regulation of
combination products to, among other things, require the FDA to conduct the premarket review of any combination product under a single application whenever appropriate.
In practice, the FDAs Office of Combination Products, or OCP, determines which center will have primary jurisdiction for the combination product based
on the combination products primary mode of action. A mode of action is the means by which a product achieves an intended therapeutic effect or action. The primary mode of action is the mode of action that provides the most
important therapeutic action of the combination product, or the mode of action expected to make the greatest contribution to the overall intended therapeutic effects of the combination product.
Often it is difficult for the OCP to determine with reasonable certainty the most important therapeutic action of the combination product. In those difficult
cases, the OCP will consider consistency with other combination products raising similar types of safety and effectiveness questions, or which center has the most expertise to evaluate the most significant safety and effectiveness questions raised
by the combination product.
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If a combination product sponsor disagrees with OCPs primary mode of action determination, the Cures Act
permits the sponsor to request that FDA provide a substantive rationale for its determination. The sponsor can then propose one or more studies to establish the relevance of the chemical action in achieving the products primary mode of action
and FDA and the sponsor will collaborate to reach agreement on the design of such studies within 90 calendar days. If the sponsor conducts the agreed-upon studies, FDA must consider the resulting data when reevaluating the products primary
mode of action.
Post-Market Drug Regulation
If the
FDA approves a drug product for commercial marketing, it may limit the approved indications for use of the product, require that contraindications, warnings or precautions be included in the product labeling, require that post-approval studies,
including Phase 4 clinical trials, be conducted to further assess a drugs safety and/or other factors after approval, require testing and surveillance programs to monitor the product after commercialization and/or patients using the product
for observation of the products long-term effects, or impose other conditions, including distribution restrictions or other risk management mechanisms, including Risk Evaluation and Mitigation Strategies, or REMS, which can materially affect
the potential market and profitability of the product. Any approved product is also subject to requirements relating to recordkeeping, periodic reporting, product sampling and distribution, advertising and promotion, labeling, and reporting of
adverse experiences with the product. The FDA may prevent or limit further marketing of a product based on the results of post-market studies or surveillance programs. After approval, some types of changes to the approved product, such as adding new
indications, manufacturing changes and additional labeling claims, are subject to further testing requirements and FDA review and
re-approval.
In addition, drug manufacturers with which we partner and other entities involved in the manufacture and distribution of approved drugs are required to
register their establishments with the FDA and state agencies, and are subject to periodic unannounced inspections by the FDA and these state agencies for compliance with cGMP requirements. Changes to the manufacturing process are strictly regulated
and often require prior FDA approval before being implemented. FDA regulations also require investigation and correction of any deviations from cGMP and impose reporting and documentation requirements upon drug developers and their manufacturers.
Accordingly, manufacturers must continue to expend time, money and effort in the areas of production and quality control to maintain cGMP compliance.
Once an approval is granted, the FDA may withdraw the approval if compliance with regulatory requirements and standards is not maintained or if problems occur
after the product reaches the market. Later discovery of previously unknown problems with a product, including AEs of unanticipated severity or frequency, or with manufacturing processes, or failure to comply with regulatory requirements, may result
in revisions to the approved labeling to add new safety information, imposition of post-market studies or clinical trials to assess new safety risks or imposition of distribution or other restrictions under a REMS program. Other potential
consequences of a failure to comply with regulatory requirements during or after the FDA approval process include, among other things:
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restrictions on the marketing or manufacturing of the product, product recalls or complete withdrawal of the product from the market;
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fines, warning or untitled letters or holds on post-approval clinical trials;
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refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals;
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product seizure or detention, or refusal to permit the import or export of products; or
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consent decrees, injunctions or the imposition of civil or criminal penalties.
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The FDA strictly regulates
marketing, labeling, advertising and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other agencies actively
enforce the laws and regulations prohibiting the promotion of off label uses, and a company that is found to have improperly promoted off label uses may be subject to significant liability.
FDA Regulation of Companion Diagnostics
We may
seek to develop or seek to partner with third parties to develop
in vitro
companion diagnostics for use in selecting the patients that we believe will respond to our drug therapeutics. Companion diagnostics are regulated by the FDA as medical
devices.
In August 2014 the FDA issued guidance that addresses issues critical to developing
in vitro
companion diagnostics. The guidance states
that if safe and effective use of a therapeutic product depends on an
in vitro
diagnostic, then the FDA generally will require approval or clearance of the diagnostic at the same time that the FDA approves the therapeutic product. In July
2016, the FDA issued a draft guidance intended to assist sponsors of the drug therapeutic and
in vitro
companion diagnostic device on issues related to
co-development
of the products.
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The FDA generally requires
in vitro
companion diagnostics intended to select the patients intended to
receive a cancer treatment to obtain approval of a
pre-market
application, or PMA approval, for that diagnostic simultaneously with approval of the drug.
Medical Device Approval Pathways
To be commercially
distributed in the United States, a medical device, including an
in vitro
diagnostic, or IVD, must receive either 510(k) clearance, de novo authorization, or PMA approval from the FDA prior to marketing. There are three classes of medical
devices recognized by the FDA, Class I (low risk), Class II (moderate risk), and Class III (high risk). Class III devices are those deemed by the FDA to pose the greatest risk, such as life-sustaining, life supporting or
implantable devices, or devices deemed not substantially equivalent to a previously 510(k) cleared device or a
pre-amendment
Class III device for which PMAs have not been called. Class III devices
generally require PMA approval prior to marketing. The PMA approval pathway requires that the subject device demonstrates a reasonable assurance of the safety and effectiveness of the device.
A PMA for an IVD typically includes data from preclinical studies and well-controlled clinical trials. Preclinical data for an IVD includes many different
tests, including how reproducible the results are when the same sample is tested multiple times by multiple users at multiple laboratories. The clinical data need to establish that the test is safe and effective for the proposed intended use in the
indicated population. In addition, the PMA must include information regarding the tests clinical utility, meaning that an IVD provides information that is clinically meaningful. Such information must be provided even if the clinical
significance of the biomarker is obvious. The applicant may also rely upon published literature or submit data to the FDA to show clinical utility.
A PMA
also must provide information about the device and its components regarding, among other things, device design, manufacturing and labeling. The sponsor must pay an application fee to the FDA upon submission of a PMA, which is just under $250,000 for
Fiscal Year 2017.
As part of the PMA review, the FDA will typically inspect the manufacturers facilities for compliance with Quality System
Regulation, or QSR, requirements, which impose elaborate testing, control, documentation and other quality assurance procedures.
Upon submission, the FDA
determines if the PMA is sufficiently complete to permit a substantive review, and, if so, the FDA accepts the application for filing. The FDA then commences an
in-depth
review of the PMA. The entire process
typically takes multiple years from submission of the PMA, but may take longer. The review time is often significantly extended as a result of the FDA asking for more information or clarification of information already provided. The FDA also may
respond with a not approvable determination based on deficiencies in the application and require additional clinical trial or other data that are often expensive and time-consuming to generate and can substantially delay approval.
During the review period, an FDA advisory committee, typically a panel of clinicians, may be convened to review the PMA application and recommend to the FDA
whether, or upon what conditions, the device should be approved. Although the FDA is not bound by the advisory panel decision, the panels recommendation is important to the FDAs overall decision-making process.
If the FDAs evaluation of the PMA is favorable, the FDA typically issues an approvable letter requiring the applicants agreement to specific
conditions, such as changes in labeling, or specific additional information, such as submission of final labeling, in order to secure final approval of the PMA. If the FDA concludes that the applicable criteria have been met, the FDA will issue a
PMA approval for the approved indications, which can be more limited than those originally sought by the applicant. The PMA approval can include post-approval conditions that the FDA believes necessary to ensure the safety and effectiveness of the
device, including, among other things, restrictions on labeling, promotion, sale and distribution. Failure to comply with the conditions of approval can result in an enforcement action, including the loss or withdrawal of the approval.
Even after approval of a PMA, a new PMA or PMA supplement may be required in the event of a modification to the device, its labeling or its manufacturing
process. Supplements to a PMA often require the submission of the same type of information required for an original PMA, except that the supplement is generally limited to the information needed to support the proposed change from the product
covered by the original PMA.
Clinical Trials and IDEs
A clinical trial is almost always required to support a PMA. For significant risk devices, the FDA regulations require that human clinical investigations
conducted in the U.S. be approved via an Investigational Device Exemption, or IDE, which must be approved before clinical testing may commence. In some cases, one or more smaller IDE studies may precede a pivotal clinical trial intended to
demonstrate the safety and efficacy of the investigational device. A
30-day
waiting period after the submission of each IDE is required prior to the commencement of clinical testing in humans. FDA may
disapprove, or approve with conditions, the IDE within the
30-day
period. If disapproved, the clinical trial may not begin until the deficiencies noted by FDA are addressed, and another IDE is submitted to the
FDA for approval. If approved with conditions, the sponsor must address the conditions prior to commencement of the trial. If FDA does not respond to the sponsor within the
30-day
period, the IDE is deemed
approved and the clinical study may commence.
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IVD trials usually do not require an IDE approval, so long as, among other things, the results of the IVD test
are not used diagnostically without confirmation of the test results by another, medically established diagnostic product or procedure. For a trial where the IVD result directs the therapeutic care of patients with cancer, we believe that the FDA
would likely consider the investigation to require an IDE application.
An IDE application must be supported by appropriate data, such as laboratory test
results, showing that it is safe to test the device in humans and that the testing protocol is scientifically sound. The IDE application must also include a description of product manufacturing and controls, and a proposed clinical trial protocol.
The FDA typically grants IDE approval for a specified number of patients. All clinical studies of investigational devices, regardless of whether IDE approval is required, require approval from IRBs.
During the clinical trial, the sponsor must comply with the FDAs IDE requirements for investigator selection, trial monitoring, reporting and record
keeping. The investigators must obtain patient informed consent, rigorously follow the investigational plan and study protocol, control the disposition of investigational devices and comply with all reporting and record keeping requirements. These
IDE requirements apply to all investigational devices, whether considered significant or nonsignificant risk. Prior to granting PMA approval, the FDA typically inspects the records relating to the conduct of the study and the clinical data
supporting the PMA for compliance with applicable requirements.
Clinical trials must be conducted: (i) in compliance with federal regulations;
(ii) in compliance with good clinical practice, or GCP, an international standard intended to protect the rights and health of patients and to define the roles of clinical trial sponsors, investigators, and monitors; and (iii) under
protocols detailing the objectives of the trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated.
The FDA
may order the temporary, or permanent, discontinuation of a clinical trial at any time, or impose other sanctions, if it believes that the clinical trial either is not being conducted in accordance with FDA requirements or presents an unacceptable
risk to the clinical trial patients. An IRB may also require the clinical trial at a study site to be halted, either temporarily or permanently, for failure to comply with the IRBs requirements, or may impose other conditions.
Although the QSR does not fully apply to investigational devices, the requirement for controls on design and development does apply. The sponsor also must
manufacture the investigational device in conformity with the quality controls described in the IDE application and any conditions of IDE approval that the FDA may impose with respect to manufacturing.
Investigational IVDs may only be distributed for use in an investigation, and the labeling must prominently contain the statement For Investigational
Use Only. The performance characteristics of this product have not been established.
Expedited Access Pathway Program
In April 2015, the FDA issued a final guidance document establishing the EAP program. The EAP program is intended to speed patient access to devices
(including companion diagnostics) that demonstrate the potential to address unmet medical needs for life threatening or irreversibly debilitating diseases or conditions and are subject to PMA approval or de novo authorization. In order to be
accepted into the EAP program, a sponsor must demonstrate to the FDAs satisfaction that the device is intended to treat or diagnose a life-threatening or irreversibly debilitating disease or condition and that it addresses an unmet need. The
sponsor must also submit an acceptable draft Data Development Plan. Once accepted into the program, the FDA intends to engage with sponsors of EAP Devices earlier and more interactively during the devices development, assessment, and
review. The FDA will also work with the device sponsor to try to reduce the time and cost from development to an approval decision. Elements of the EAP program may include priority review, interactive review, senior management
involvement, and assignment of a case manager.
Post-Market Device Regulation
After a device obtains FDA approval and is on the market, numerous regulatory requirements apply. These requirements include the QSR, labeling regulations, the
FDAs general prohibition against promoting products for unapproved or
off-label
uses, the Medical Device Reporting regulation, which requires that manufacturers report to the FDA if their
device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur, and the Reports of Corrections and Removals regulation, which
requires manufacturers to report recalls and field actions to the FDA if initiated to reduce a risk to health posed by the device or to remedy a violation of the FDCA.
The FDA enforces these requirements by inspection and market surveillance. If the FDA finds a violation, it can institute a wide variety of enforcement
actions, ranging from a public warning letter to more severe sanctions such as fines, injunctions and civil penalties; recall or seizure of products; operating restrictions, partial suspension or total shutdown of production; refusing requests for
PMA approval of new products; withdrawing PMA approvals already granted; and criminal prosecution.
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Foreign Regulation
To obtain marketing approval of a drug under European Union regulatory systems, we may submit marketing authorization applications, or MAAs, either under a
centralized or decentralized procedure. The centralized procedure provides for the grant of a single marketing authorization that is valid for all European Union member states. The centralized procedure is compulsory for medicines produced by
specified biotechnological processes, products designated as orphan medicinal products, and products with a new active substance indicated for the treatment of specified diseases, and optional for those products that are highly innovative or for
which a centralized process is in the interest of patients. Under the centralized procedure in the European Union, the maximum timeframe for the evaluation of an MAA is 210 days, excluding clock stops, when additional written or oral information is
to be provided by the applicant in response to questions asked by the Scientific Advice Working Party of the Committee of Medicinal Products for Human Use, or the CHMP. Accelerated evaluation might be granted by the CHMP in exceptional cases, when a
medicinal product is expected to be of a major public health interest, defined by three cumulative criteria comprising the seriousness of the disease, such as heavy disabling or life-threatening diseases, to be treated; the absence or insufficiency
of an appropriate alternative therapeutic approach; and anticipation of high therapeutic benefit. In this circumstance, the European Medicines Agency, or EMA, ensures that the opinion of the CHMP is given within 150 days.
The EMA grants orphan drug designation to promote the development of products that may offer therapeutic benefits for life-threatening or chronically
debilitating conditions affecting not more than five in 10,000 people in the European Union. In addition, orphan drug designation can be granted if the drug is intended for a life threatening, seriously debilitating or serious and chronic condition
in the European Union and without incentives it is unlikely that sales of the drug in the European Union would be sufficient to justify developing the drug. Orphan drug designation is only available if there is no other satisfactory method approved
in the European Union of diagnosing, preventing or treating the condition, or if such a method exists, the proposed orphan drug will be of significant benefit to patients. Orphan drug designation provides opportunities for free protocol assistance,
fee reductions for access to the centralized regulatory procedures before and during the first year after marketing authorization and between 6 and 10 years of market exclusivity following drug approval. The EMA has us granted orphan drug
designation for entrectinib for the treatment of neuroblastoma.
The decentralized procedure for submitting an MAA provides an assessment of an
application performed by one member state, known as the reference member state, and the approval of that assessment by one or more other member states, known as concerned member states. Under this procedure, an applicant submits an application, or
dossier, and related materials, including a draft summary of product characteristics, and draft labeling and package leaflet, to the reference member state and concerned member states. The reference member state prepares a draft assessment and
drafts of the related materials within 120 days after receipt of a valid application. Within 90 days of receiving the reference member states assessment report, each concerned member state must decide whether to approve the assessment report
and related materials. If a member state cannot approve the assessment report and related materials on the grounds of potential serious risk to public health, the disputed points may eventually be referred to the European Commission, whose decision
is binding on all member states. Prior to submitting an MAA for use of drugs in pediatric populations, the EMA requires submission of, or a request for waiver or deferral of, a Pediatric Investigation Plan.
In the European Union, new chemical entities qualify for eight years of data exclusivity upon marketing authorization and an additional two years of market
exclusivity. This data exclusivity, if granted, prevents regulatory authorities in the European Union from assessing a generic (abbreviated) application for eight years, after which generic marketing authorization can be submitted but not approved
for two years. Even if a compound is considered to be a new chemical entity and the sponsor is able to gain the prescribed period of data exclusivity, another company nevertheless could also market another version of the drug if such company can
complete a full MAA with a complete human clinical trial database and obtain marketing approval of its product.
Additional Regulations and
Environmental Matters
In addition to FDA restrictions on marketing of pharmaceutical products, several other types of state and federal laws
restrict certain marketing practices in the pharmaceutical industry. These laws, which generally will not be applicable to us or our product candidates unless and until we obtain FDA marketing approval for any of our product candidates, include
state and federal anti-kickback, fraud and abuse, false claims, physician payment sunshine and privacy and security laws and regulations regarding providing drug samples.
The federal healthcare program anti-kickback statute prohibits, among other things, knowingly and willfully offering, paying, soliciting or receiving
remuneration to induce or in return for purchasing, leasing, ordering or arranging for the purchase, lease or order of any healthcare item or service reimbursable under Medicare, Medicaid or other federally financed healthcare programs. Violations
of the federal anti-kickback statute are punishable by imprisonment, criminal fines, civil monetary penalties and exclusion from participation in federal healthcare programs. A person or entity does not need to have actual knowledge of the statute
or specific intent to violate it in order to have committed a violation. In addition, the government may assert that a claim including items or services resulting from a violation of the federal Anti-Kickback Statute constitutes a false or
fraudulent claim for purposes of the federal False Claims Act.
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Federal false claims laws prohibit any person from knowingly presenting, or causing to be presented, a false
claim for payment to the federal government, or knowingly making, or causing to be made, a false statement to have a false claim paid. Recently, several pharmaceutical companies have been prosecuted under these laws for allegedly inflating drug
prices they report to pricing services, which in turn were used by the government to set Medicare and Medicaid reimbursement rates, and for allegedly providing free product to customers with the expectation that the customers would bill federal
programs for the product. In addition, certain marketing practices, including
off-label
promotion, may also violate false claims laws.
The majority of states also have statutes or regulations similar to the federal anti-kickback law and false claims laws, which apply to items and services
reimbursed under Medicaid and other state programs, or, in several states, apply regardless of the payer.
The Health Insurance Portability and
Accountability Act, or HIPAA, also created federal criminal statutes that prohibit among other actions, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, including private third-party
payors, knowingly and willfully embezzling or stealing from a healthcare benefit program, willfully obstructing a criminal investigation of a healthcare offense, and knowingly and willfully falsifying, concealing or covering up a material fact or
making any materially false, fictitious or fraudulent statement in connection with the delivery of or payment for healthcare benefits, items or services. Similar to the federal anti-kickback statute, a person or entity does not need to have actual
knowledge of the statute or specific intent to violate it in order to have committed a violation.
HIPAA, as amended by the Health Information Technology
for Economic and Clinical Health Act, or HITECH, and its implementing regulations, also imposes certain requirements relating to the privacy, security and transmission of individually identifiable health information. Among other things, HITECH makes
HIPAAs security standards directly applicable to business associates, independent contractors or agents of covered entities that receive or obtain protected health information in connection with providing a service on behalf of a covered
entity. HITECH also created four new tiers of civil monetary penalties, amended HIPAA to make civil and criminal penalties directly applicable to business associates, and gave state attorneys general new authority to file civil actions for damages
or injunctions in federal courts to enforce the federal HIPAA laws and seek attorneys fees and costs associated with pursuing federal civil actions.
There has also been a recent trend of increased federal and state regulation of payments made to physicians and other healthcare providers. The Patient
Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or collectively, the Affordable Care Act, among other things, imposes reporting requirements on certain drug manufacturers for payments made by them
to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members. Failure to submit required information may result in civil monetary penalties of up to an aggregate of
$150,000 per year (or up to an aggregate of $1 million per year for knowing failures), for all payments, transfers of value or ownership or investment interests that are not timely, accurately and completely reported in an annual
submission. Drug manufacturers are required to submit reports to the government by the 90th day of each calendar year. Certain states also mandate implementation of compliance programs, impose restrictions on drug manufacturer marketing practices
and/or require the tracking and reporting of marketing expenditures and pricing information as well as gifts, compensation and other remuneration to physicians.
Additionally, the Prescription Drug Marketing Act, or the PDMA, imposes requirements and limitations upon the provision of drug samples to physicians, as well
as prohibits states from licensing distributors of prescription drugs unless the state licensing program meets certain federal guidelines that include minimum standards for storage, handling and record keeping. In addition, the PDMA sets forth civil
and criminal penalties for violations. If we obtain approval from the FDA to market any of our drug product candidates, these product sampling restrictions may impact and curtail our marketing efforts to physicians.
Further, sales of any of our product candidates that may be approved will depend, in part, on the extent to which the cost of the product will be covered by
third party payers. Third party payers may limit coverage to an approved list of products, or formulary, which might not include all drug products approved by the FDA for an indication. Any product candidates for which we obtain marketing approval
may not be considered medically necessary or cost-effective by third party payers, and we may need to conduct expensive pharmacoeconomic studies in the future to demonstrate the medical necessity and/or cost effectiveness of any such product. The
U.S. government, state legislatures and foreign governments have shown increased interest in implementing cost containment programs to limit government-paid health care costs, including price controls, restrictions on reimbursement and requirements
for substitution of generic products. Continued interest in and adoption of such controls and measures, and tightening of restrictive policies in jurisdictions with existing controls and measures, could limit payments for pharmaceuticals such as the
product candidates we are developing.
Coverage and Reimbursement
Sales of any of our product candidates that may be approved will depend, in part, on the extent to which the cost of the product will be covered by third party
payers. Third party payers may limit coverage to an approved list of products, or formulary, which might not include all drug products approved by the FDA for an indication. Any product candidates for which we obtain marketing approval may not be
considered medically necessary or cost-effective by third party payers, and we may need to conduct expensive pharmacoeconomic studies in the future to demonstrate the medical necessity and/or cost effectiveness of any such product. The U.S.
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government, state legislatures and foreign governments have shown increased interest in implementing cost containment programs to limit government-paid health care costs, including price
controls, restrictions on reimbursement and requirements for substitution of generic products. Continued interest in and adoption of such controls and measures, and tightening of restrictive policies in jurisdictions with existing controls and
measures, could limit payments for pharmaceuticals such as the product candidates we are developing.
Healthcare Reform
A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government authorities and other third-party payors have attempted to
control costs by limiting coverage and the amount of reimbursement for particular medical products, implementing reductions in Medicare and other healthcare funding, and applying new payment methodologies. For example, in March 2010, the Affordable
Care Act was enacted, which, among other things, subjected drug manufacturers to new annual fees based on pharmaceutical companies share of sales to federal healthcare programs; created a new Patient Centered Outcomes Research Institute to
oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research; creation of the Independent Payment Advisory Board, which has authority to recommend certain changes to the Medicare
program that could result in reduced payments for prescription drugs; and establishment of a Center for Medicare Innovation at the CMS to test innovative payment and service delivery models to lower Medicare and Medicaid spending.
We expect that the new presidential administration and U.S. Congress will seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the
Affordable Care Act. Since taking office, President Trump has continued to support the repeal of all or portions of the Affordable Care Act. In January 2017, the House and Senate passed a budget resolution that authorizes congressional committees to
draft legislation to repeal all or portions of the Affordable Care Act and permits such legislation to pass with a majority vote in the Senate. President Trump has also recently issued an executive order in which he stated that it is his
administrations policy to seek the prompt repeal of the Affordable Care Act and directed executive departments and federal agencies to waive, defer, grant exemptions from, or delay the implementation of the provisions of the Affordable Care
Act to the maximum extent permitted by law. There is still uncertainty with respect to the impact President Trumps administration and the U.S. Congress may have, if any, and any changes will likely take time to unfold, and could have an impact
on coverage and reimbursement for healthcare items and services covered by plans that were authorized by the Affordable Care Act. However, we cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of
potential legislation on us.
In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act to
reduce healthcare expenditures. These changes include aggregate reductions of Medicare payments to providers of 2% per fiscal year that, due to subsequent legislative amendments, will remain in effect through 2025 unless additional action is taken
by Congress. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers and cancer treatment
centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Recently there has been heightened governmental scrutiny over the manner in which manufacturers set prices for
their marketed products, which has resulted in several Congressional inquiries and proposed bills designed to, among other things, reform government program reimbursement methodologies.
Corporate Overview
Infinity Oil & Gas Company,
or Parent, was incorporated under the laws of the State of Nevada on August 21, 2012. Ignyta was incorporated under the laws of the State of Delaware on August 29, 2011, with the name NexDx, Inc. On October 31, 2013, IGAS
Acquisition Corp, a wholly owned subsidiary of Parent, merged with and into Ignyta, and Ignyta survived the merger and became the wholly owned subsidiary of Parent. Upon the closing of the merger, Parent ceased to be a shell company
under applicable rules of the U.S. Securities and Exchange Commission, or SEC. In connection with the merger, Parent changed its name to Ignyta, Inc. and Ignyta changed its name to Ignyta Operating, Inc.
On October 31, 2013, Parent effected a
100-to-one
reverse stock split of
its issued and outstanding shares of common stock, and all share information in this Annual Report on Form
10-K
with respect to Parent gives retroactive effect to that reverse stock split.
On October 31, 2013, in connection with the closing of the merger, (i) all then-outstanding shares of each series of Ignytas preferred stock
were voluntarily converted into shares of Ignytas common stock in accordance with Ignytas certificate of incorporation, and (ii) Ignyta effected a
three-to-one
reverse stock split of its issued and outstanding shares of capital stock. All share information in this Annual Report on Form
10-K
with respect to Ignytas capital stock gives retroactive effect to that reverse stock split.
Concurrent with
the closing of the merger, Parent abandoned its
pre-merger
business plan in the oil and gas industry, and we now solely pursue the business of Ignyta in the oncology drug development industry.
On June 12, 2014, Parent merged with and into Ignyta, with Ignyta surviving the merger and changing its name to Ignyta, Inc. The following discussion
describes our current business.
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Employees
As of February 28, 2017, we had 112 employees, 108 of whom were full-time, including 34 employees with M.D. or Ph.D. degrees, and four part-time
employees. Of these full-time and part-time employees, 80 employees were engaged in research and development activities. None of our employees are represented by a labor union or covered by a collective bargaining agreement. We consider our
relationship with our employees to be good.
Research and Development
Our research and development expenses for the years ended December 31, 2016, 2015 and 2014 were $76.9 million, $73.5 million, and
$30.5 million, respectively.
Available Information
We file electronically with the Securities and Exchange Commission, or SEC, our annual reports on
Form 10-K,
quarterly reports on Form
10-Q
and current reports on Form
8-K
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. We make available on our website at www.ignyta.com, free of charge, copies of these reports, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. The public may read or copy any
materials we file with the SEC at the SECs Public Reference Room at 100 F Street NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
The SEC maintains an Internet site that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov. The information in or accessible through the SECs and our website are not incorporated into, and are not considered part of, this filing.
Further, our references to the URLs for these websites are intended to be inactive textual references only.
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We operate in a dynamic and rapidly changing environment that involves numerous risks
and uncertainties. Certain factors may have a material adverse effect on our business, prospects, results of operations, financial condition and cash flows, and you should carefully consider them. Accordingly, in evaluating our business, we
encourage you to consider the following discussion of risk factors, in its entirety, in addition to other information contained in this Annual Report on Form
10-K
and our other public filings with the SEC.
Other events that we do not currently anticipate or that we currently deem immaterial may also affect our business, prospects, financial condition and results of operations.
Risks Related to Our Financial Position and Capital Requirements
We have incurred significant losses since our inception and anticipate that we will continue to incur losses for the foreseeable future. We are a
development-stage company with no approved products, and have generated no material revenue to date and may never generate material revenue or achieve profitability.
We are a development-stage biopharmaceutical company with a limited operating history. We have not generated any material revenue to date and are not
profitable, and have incurred losses in each year since our inception. Our net loss for the year ended December 31, 2016 was $103.6 million. As of December 31, 2016, we had an accumulated deficit of $251.7 million. We expect to
continue to incur losses for the foreseeable future, and we expect these losses to increase as we continue our development of, and seek regulatory approvals for, our product candidates, and begin to commercialize any approved products. We are
currently focused on the development of our clinical and preclinical development programs, which we believe will result in our continued incurrence of significant research and development and other expenses related to those programs. If the
non-clinical
or clinical trials for any of our product candidates fail or produce unsuccessful results and those product candidates do not gain regulatory approval, or if any of our product candidates, if approved,
fails to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. Our prior losses, combined with expected future losses, have had
and will continue to have an adverse effect on our stockholders equity and working capital.
We expect to need additional funding to continue
our operations, which could result in dilution or restrictions on our business activities. We may not be able to raise capital when needed, if at all, which would force us to delay, limit, reduce or terminate our product development programs or
commercialization efforts and could cause our business to fail.
Our operations have consumed substantial amounts of cash since inception. We
expect to need substantial additional funding to pursue our development programs and launch and commercialize any product candidates for which we receive regulatory approval, which may include building internal sales and marketing forces to address
certain markets.
Even after giving effect to the proceeds received from our common stock offerings and our loan arrangement with SVB and Oxford, we
expect to require substantial additional capital for the further development and commercialization of our product candidates. Further, we expect our expenses to increase in connection with our ongoing activities, particularly as we continue to
expand our ongoing entrectinib and other development programs, and if we acquire rights to additional product candidates. For example, in September 2015 we initiated a new, global Phase 2 clinical trial of oral entrectinib in adult patients
with advanced or metastatic cancer detected to be positive for relevant molecular alterations. We are conducting and plan to initiate additional clinical trials to study our other product candidates in the future.
In addition, if we obtain regulatory approval for any of our product candidates, we expect to incur significant commercialization expenses related to product
manufacturing, marketing, sales and distribution. Furthermore, we expect to incur additional costs associated with our growth, as well as operating as a public company. For example, in October 2015 we signed a new lease for approximately 95,000
square feet of office and laboratory space, which lease became effective in the fourth quarter of 2016. We may also encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may increase our capital needs
and/or cause us to spend our cash resources faster than we expect. Accordingly, we expect to need to obtain substantial additional funding in order to continue our operations.
To date, we have financed our operations entirely through equity investments and the incurrence of debt, and we expect to continue to do so in the foreseeable
future. We may also seek funding through collaborative arrangements. Additional funding from those or other sources may not be available when or in the amounts needed, on acceptable terms, or at all. If we raise capital through the sale of equity,
or securities convertible into equity, it would result in dilution to our then existing stockholders, which could be significant depending on the price at which we may be able to sell our securities. If we raise additional capital through the
incurrence of further indebtedness, as we have done under our loan agreement with SVB and Oxford under which our ability to incur additional indebtedness is limited, we would likely become subject to additional covenants restricting our business
activities, and holders of debt instruments may have rights and privileges senior to those of our equity investors. In addition, servicing the interest and principal
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repayment obligations under debt facilities could divert funds that would otherwise be available to support research and development, clinical or commercialization activities. If we obtain
capital through collaborative arrangements, these arrangements could require us to relinquish rights to our technology or product candidates and could result in our receipt of only a portion of the revenues associated with the partnered products. If
we are unable to raise capital when needed or on attractive terms, we could be forced to delay, limit, reduce or terminate our research and development programs or any future commercialization efforts. Any of these events could significantly harm
our business, financial condition and prospects.
We have incurred significant indebtedness under our loan agreement with SVB and Oxford, which will
require substantial cash to service and which subjects our business to certain restrictions.
On June 30, 2016, we entered into a loan
agreement with SVB as collateral agent and SVB and Oxford, collectively referred to as the Lenders, under which we incurred $32.0 million of indebtedness, substantially all of which was used to repay our then-existing $31.0 million loan
with SVB. Under the loan agreement, we also have an option to receive an additional $10.0 million at any time from April 7, 2017 to August 31, 2017, provided that certain conditions have then been satisfied. We are required to pay
interest on the borrowings under the loan agreement at a
per-annum
rate of Prime Rate plus 4.35% on a monthly basis for a period of 24 months. Thereafter, we will be required to repay the principal plus
interest in 36 equal monthly installments; provided, however, that the interest-only period will be extended by an additional six months in the event we either (1) raise sufficient capital to trigger such extension under the terms of the loan
agreement or (2) receive certain clinical trial data as required by the loan agreement. In the event that the interest only period is extended, the amortization period will be reduced to 30 months. Further, upon the maturity date the terms of
the loan agreement require that we make a final
lump-sum
payment of 5% of the principal amount of the loans thereunder. We may elect to prepay all amounts owed under either or both of the loan tranches prior
to the maturity date therefor, provided that a prepayment fee of 2% of the amount prepaid is also paid if the prepayment occurs on or prior to June 30, 2017, or 1% of amount prepaid is also paid, if the prepayment occurs thereafter.
Our ability to make scheduled payments on or to refinance our indebtedness depends on our future performance and ability to raise additional sources of cash,
which is subject to economic, financial, competitive and other factors beyond our control. If we are unable to generate sufficient cash to service our debt, we may be required to adopt one or more alternatives, such as selling assets, restructuring
our debt or obtaining additional equity capital on terms that may be onerous or highly dilutive. If we desire to refinance our indebtedness, our ability to do so will depend on the capital markets and our financial condition at such time.
We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on our debt
obligations. Additionally, the loan agreement contains various covenants, including an obligation to deliver to the Lenders certain financial and insurance information and comply with certain notice requirements, and covenants that restrict our
ability, without prior consent, to: incur certain additional indebtedness, enter into certain mergers, acquisitions or other business combination transactions, or incur any
non-permitted
lien or other
encumbrance on our assets. Any failure by us to comply with any of those covenants, subject to certain cure periods, or to make all payments under the loan agreement when due, would cause us to be in default. In the event of any such default, the
Lenders may be able to declare all borrowed funds, together with accrued and unpaid interest, immediately due and payable, thereby potentially causing all or substantial amounts of our available cash to be used to repay our indebtedness or forcing
us into bankruptcy or liquidation if we do not then have sufficient cash available. Any such event or occurrence could severely and negatively impact our operations and prospects.
Our short operating history may hinder our ability to successfully meet our objectives, and may limit the amount of information about us upon which you
can base an evaluation of our business and prospects.
The early stage nature of our business results in a limited operating history upon which
you can evaluate our business and prospects. Our product candidates are at various stages of development, have not obtained regulatory marketing approval, have never generated any sales and require extensive testing before
commercialization. Our limited operating history may adversely affect our ability to implement our business strategy and achieve our business goals, which include, among others, the following activities:
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develop our product candidates;
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obtain the human and financial resources necessary to develop, test, manufacture and market our product candidates;
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continue to build and maintain an intellectual property portfolio covering our technology and our product candidates;
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satisfy the requirements of clinical trial protocols, including patient enrollment, establish and demonstrate the clinical efficacy and safety of our product candidates and obtain necessary regulatory approvals;
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market our product candidates that receive regulatory approvals to achieve acceptance and use by the medical community in general;
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develop and maintain successful collaboration, strategic and other relationships for the development and commercialization of our product candidates; and
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manage our cash flows and any growth we may experience in an environment where costs and expenses relating to clinical trials, regulatory approvals and commercialization continue to increase. If we are unsuccessful in
accomplishing these objectives, we may not be able to successfully develop product candidates, raise capital, expand our business or continue our operations.
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Risks Related to Our Employees
If we are not able
to attract and retain highly qualified personnel, we may not be able to successfully implement our business strategy.
Our ability to compete in
the highly competitive biotechnology and pharmaceuticals industries depends upon our ability to attract and retain highly qualified personnel. We are highly dependent on our management, scientific and medical personnel, especially Jonathan E. Lim,
M.D., our President, Chief Executive Officer and Chairman of the Board, whose services are critical to the successful implementation of our business strategies.
We are not aware of any present intention of any of our executive officers or other members of management to leave our company. However, our industry tends to
experience a high rate of turnover of management personnel, and our personnel are generally able to terminate their relationships with us on short notice. All of our employment arrangements provide for
at-will
employment, which means that any of our employees could leave our employment at any time, with or without notice. The loss of the services of any of our executive officers or other key employees and our inability to find suitable replacements could
potentially harm our business, financial condition and prospects. Our success also depends on our ability to continue to attract, retain and motivate highly skilled junior and
mid-level
managers as well as
junior and
mid-level
scientific and medical personnel.
Moreover, there is intense competition for a limited
number of qualified personnel among biopharmaceutical, biotechnology, pharmaceutical and other businesses. Many of the other pharmaceutical companies against which we compete for qualified personnel have greater financial and other resources,
different risk profiles, longer histories in the industry and greater ability to provide valuable cash or stock incentives to potential recruits than we do. They also may provide more diverse opportunities and better chances for career advancement.
Some of these characteristics may be more appealing to high quality candidates than what we are able to offer. If we are unable to continue to attract and retain high quality personnel, the rate and success at which we can develop and commercialize
product candidates will be limited.
We may be subject to claims by third parties asserting that our employees or we have misappropriated their
intellectual property, or claiming ownership of what we regard as our own intellectual property.
Many of our employees were previously employed
at universities or other biotechnology or pharmaceutical companies, including our competitors or potential competitors. Although we try to ensure that our employees do not use the proprietary information or
know-how
of others in their work for us, through contractual provisions and other procedures, we may be subject to claims that these employees or we have used or disclosed intellectual property, including
trade secrets or other proprietary information, of any such employees former employers. Litigation may be necessary to defend against any such claims.
In addition, while it is our policy to require our employees and contractors who may be involved in the development of intellectual property to execute
agreements assigning such intellectual property to us, we may be unsuccessful in executing such an agreement with each party who in fact contributes to the development of intellectual property that we regard as our own. Further, the terms of such
assignment agreements may be breached and we may not be able to successfully enforce their terms, which may force us to bring claims against third parties, or defend claims they may bring against us, to determine the ownership of intellectual
property rights we may regard and treat as our own.
Our employees may engage in misconduct or other improper activities, including noncompliance
with regulatory standards and requirements, which could cause our business to suffer.
We are exposed to the risk of employee fraud or other
misconduct. Misconduct by employees could include intentional failures to comply with regulations of governmental authorities, such as the FDA or the EMA, to provide accurate information to the FDA or EMA, to comply with manufacturing standards we
have established, to comply with federal, state and international healthcare fraud
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and abuse laws and regulations, to report financial information or data accurately or to disclose unauthorized activities to us. Employee misconduct could also involve the improper use of
information obtained in the course of clinical trials, which could result in regulatory sanctions and serious harm to our reputation. It is not always possible to identify and deter employee misconduct, and the precautions we currently take and the
procedures we may establish in the future as our operations and employee base expand to detect and prevent this type of activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental
investigations or other actions or lawsuits stemming from a failure by our employees to comply with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights,
those actions could have a significant impact on our business and results of operations, including the imposition of significant fines or other sanctions.
Risks Related to the Development of Our Product Candidates
We are heavily dependent on the success of our current product candidates, which will require significant additional efforts to develop and may prove not
to be viable for commercialization.
To date, we have invested significant efforts in the acquisition of our drug programs from NMS, Teva and
Lilly. Our future success is substantially dependent on our ability to successfully develop, obtain regulatory approval for, and then successfully commercialize products resulting from these programs and any others we may develop or acquire in the
future, which may never occur.
Before we could generate any revenues from sales of our product candidates, we must complete the following activities for
each of them, any one of which we may not be able to successfully complete:
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conduct substantial clinical development;
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manage clinical, preclinical and manufacturing activities;
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complete development of a proposed commercial formulation;
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achieve regulatory approvals;
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establish manufacturing relationships;
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build a commercial sales and marketing team, if we choose to market any such product ourselves, or enter into a collaboration to access sales and marketing functions;
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develop and implement marketing and reimbursement strategies;
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develop and/or work with third-party collaborators to develop companion diagnostics and conduct clinical testing and achieve regulatory approvals for those companion diagnostics; and
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invest significant additional cash in each of the above activities.
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If the results of our ongoing or planned
clinical trials of entrectinib and any other product candidates are not successful, we may not be able to use those results as the basis for advancing these product candidates into further clinical development. In that case, we may not have the
resources to conduct new clinical trials, and/or we may determine that further clinical development of these product candidates is not justified and may decide to discontinue the programs. If the results of preclinical testing for our other product
candidates are not successful, we may not be able to use those results as the basis for advancing those programs into further development. If studies of our product candidates produce unsuccessful results and we are forced or elect to cease their
development, our business and prospects could be substantially harmed, particularly if the product candidates for which development has ceased are at the clinical development stage.
Preclinical and clinical testing of our product candidates that has been conducted to date may not have been performed in compliance with applicable
regulatory standards, which could lead to increased costs or material delays for their further development.
We have only recently acquired the
rights to develop our programs from NMS, Teva and Lilly, and the previous development of those programs was conducted wholly by such companies or any third parties with which they had contracted. As a result, we were not
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involved with nor did we have any control over any of those development activities. Because we had no input on those development activities, we may discover that all or certain elements of the
trials and studies performed prior to our acquisition of rights to these programs have not been in compliance with applicable regulatory standards or have otherwise been deficient. If the previously conducted studies are not in full compliance with
applicable regulatory standards or are otherwise not eligible for continued development in the United States or elsewhere, then we may be forced to conduct new studies in order to progress their development, which we may not have the funding or
other resources to complete and which could severely delay any of our development plans for these product candidates. Any such deficiency in the prior development of these product candidates would significantly harm our business plans and prospects.
Our research and development efforts are based on a rapidly evolving area of science, and our approach to development is novel and may never lead
to marketable products.
Biopharmaceutical product development is generally a highly speculative undertaking and by its nature involves a
substantial degree of risk. Our specific line of business, the development of personalized drug therapeutics for patients with molecularly defined cancers, is an emerging field, and the scientific discoveries that form the basis for our efforts to
develop product candidates are relatively new. Further, the scientific evidence to support the feasibility of developing product candidates based on those discoveries is both preliminary and limited. The failure of the scientific underpinnings of
our business model to produce viable product candidates would substantially harm our operations and prospects.
We may not be successful in our
efforts to build a pipeline of product candidates.
A key element of our strategy is to use and expand our product platform to build a pipeline of
inhibitors of specific molecular targets, and progress those product candidates through clinical development for the treatment of a variety of different types of cancer. Although our research efforts to date have resulted in identification of a
series of cancer drug targets, we may not be able to develop product candidates that are safe and effective inhibitors of any of these targets. Even if we are successful in building a product pipeline, the potential product candidates that we
identify may not be suitable for clinical development for a number of reasons, including causing harmful side effects or demonstrating other characteristics that indicate a low likelihood of receiving marketing approval or achieving market
acceptance. If our methods of identifying potential product candidates fail to produce a pipeline of potentially viable product candidates, then our success as a business will be dependent on the success of fewer potential product candidates, which
introduces risks to our business model and potential limitations to any success we may achieve.
Clinical drug development involves a lengthy and
expensive process with uncertain outcomes, and any of our clinical trials or studies could produce unsuccessful results or fail at any stage in the testing process.
Clinical testing is expensive and can take many years to complete, and its outcome is inherently uncertain. Failure can occur at any time during the clinical
trial process. Additionally, any positive results of preclinical studies and early clinical trials of a product candidate may not be predictive of the results of later-stage clinical trials, such that product candidates may reach later stages of
clinical trials and fail to show the desired safety and efficacy traits despite having shown indications of those traits in earlier studies. For example, although the preclinical and early clinical results for our lead product candidate entrectinib
have been promising, those results do not imply that later clinical trials will demonstrate similar results. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of
efficacy or adverse safety profiles, notwithstanding promising results in earlier trials. The results of any future clinical trials we conduct may not be successful.
Although there are multiple clinical trials ongoing for entrectinib,
RXDX-105
and taladegib we may experience delays
in pursuing those or any other clinical or preclinical studies. Clinical trials can be delayed for a variety of reasons, including delays related to:
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obtaining regulatory approval to commence a trial;
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engaging leading clinical investigators and identifying sufficient clinical trial sites to conduct or support our clinical trials;
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clinical protocol design and development, and reaching consensus with participating investigators on study design;
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reaching agreement on acceptable contractual and financial terms with prospective contract research organizations, or CROs, and clinical trial sites, the terms of which can be subject to extensive negotiation and may
vary significantly among different CROs and trial sites;
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obtaining approval from an independent institutional review board, or IRB, at each trial site;
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enrolling suitable patients to participate in a trial;
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developing and validating companion diagnostics on a timely basis, and utilizing such companion diagnostics on an effective and timely basis;
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changes in formulation, dosing or administration regimens;
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having patients complete a trial or return for post-treatment
follow-up;
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clinical sites deviating from the trial protocol or dropping out of a trial;
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regulators instituting a clinical hold due to observed safety findings;
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changes in the regulatory, clinical or commercial landscape during the conduct of a trial that impair accrual;
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findings from nonclinical toxicology or safety pharmacology studies or the requirement for such studies;
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adding new clinical trial sites; or
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manufacturing or having manufactured sufficient quantities of product candidate and the suitability of that product candidate for use in clinical trials on a timely basis.
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We currently rely, and we expect to continue to rely, on CROs, clinical trial sites, contract manufacturers and other third parties to ensure the proper and
timely conduct of our clinical trials. Although we have agreements in place with such third parties governing their committed activities and conduct, and we expect we will have similar agreements with other third parties we may engage in the future,
we have limited influence over their actual performance. As a result, we ultimately do not have control over a third partys compliance with the terms of any agreement it may have with us, its compliance with applicable regulatory requirements,
or its adherence to agreed time schedules and deadlines, and a third partys failure to perform those obligations could subject any of our clinical trials to delays or failure.
We could also encounter delays if a clinical trial is suspended or terminated by us, by the IRBs of the institutions in which such trials are being conducted,
by the Data Monitoring Committee for the trial, if applicable, or by the FDA or other regulatory authorities. Such authorities may impose such a suspension or termination due to a number of factors, including failure to conduct the clinical trial in
accordance with regulatory requirements or our clinical protocols, inspection of the clinical trial operations or trial sites by the FDA or other regulatory authorities resulting in the imposition of a clinical hold, unforeseen safety issues or
adverse side effects, failure to demonstrate a benefit from using a product candidate, changes in governmental regulations or administrative actions or lack of adequate funding to continue the clinical trial. If we were to experience delays in the
completion of, or suspension or termination of, any clinical trial for our product candidates, the commercial prospects of the product candidate would be harmed, and our ability to generate product revenues from the product candidate would be
delayed or eliminated. In addition, any delays in completing clinical trials would increase our costs, slow down our product candidate development and approval process and jeopardize regulatory approval of the product candidate. The occurrence of
any of these events could harm our business, financial condition and prospects significantly.
If we experience delays or difficulties in the
enrollment of patients in clinical trials, those clinical trials could take longer than expected to complete and our receipt of necessary regulatory approvals could be delayed or prevented.
We may not be able to initiate or continue clinical trials for our product candidates if we are unable to locate and enroll a sufficient number of eligible
patients to participate in these trials as required by the FDA or similar regulatory authorities outside the United States. In particular, because we are primarily focused on patients with molecularly defined cancers which have relatively low
incidence rates, our pool of suitable patients may be smaller and more selective and our ability to enroll a sufficient number of suitable patients may be limited or take longer than anticipated. For example, our product candidate entrectinib is
designed as a targeted therapeutic candidate to treat patients with cancers that harbor activating alterations to
NTRK
(encoding TRK),
ROS1
(encoding ROS1) or
ALK
(encoding ALK). Our research to date indicates that
NTRK
,
ROS1
and
ALK
genes appear to be rearranged across a range of tumor types, with a frequency in the low single digit percentages, or possibly lower. The frequency at which
NTRK
,
ROS1
and
ALK
rearrangements are
expressed in certain tumor types may affect our success in enrolling a suitable number of patients to participate in our clinical trials. In addition, some of our competitors have ongoing clinical trials for product candidates that treat the
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same indications or target the same molecular alterations as our product candidates, and patients who would otherwise be eligible for our clinical trials may instead enroll in clinical trials of
our competitors product candidates.
Patient enrollment for any of our clinical trials may also be affected by other factors, including without
limitation:
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the severity of the disease under investigation;
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the frequency of the molecular biomarker we are seeking to target in the applicable trial, and the ability to effectively identify such biomarker;
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the willingness of clinical sites and principal investigators to subject candidate patients to molecular screening;
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the eligibility criteria for the study in question;
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the perceived risks and benefits of the product candidate under study;
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the availability, effectiveness and safety of other treatment options;
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the extent of the efforts to facilitate timely enrollment in clinical trials;
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the patient referral practices of physicians;
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the ability to monitor patients adequately during and after treatment;
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the proximity and availability of a sufficient number of clinical trial sites that are willing to comply with the requirements of our clinical protocols; and
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the presence of
site-to-site
variations at our clinical sites in the management of eligible study patients, which could impair our ability
to interpret or generalize the results of the study. Our inability to enroll a sufficient number of patients for our clinical trials would result in significant delays and could require us to abandon one or more clinical trials altogether.
Enrollment delays in our clinical trials would likely result in increased development costs for our product candidates, and we may not have or be able to obtain sufficient cash to fund such increased costs when needed, which could result in the
further delay or termination of the trials.
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Consistent with our general product development strategy, we designed our ongoing Phase 2
clinical trial of entrectinib, and we generally expect to design any other trials for that and our other product candidates, to include patients with applicable molecular alterations or biomarkers, with a view to assessing possible early evidence of
potential therapeutic effect. If we are unable to locate and include such patients in those trials, then our ability to make those early assessments and to seek participation in FDA expedited review and approval programs, including accelerated
approval, breakthrough therapy and fast track designation, or otherwise to seek to accelerate clinical development and regulatory timelines, could be compromised.
The approval processes of regulatory authorities are lengthy, time consuming, expensive and inherently unpredictable. If we are unable to obtain
approval for our product candidates from applicable regulatory authorities, we will not be able to market and sell those product candidates in those countries or regions and our business will be substantially harmed.
The time required to obtain approval by the FDA, EMA and comparable foreign authorities is unpredictable, but typically takes many years following the
commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. We have not submitted an NDA or similar filing or obtained regulatory approval for any product candidate in any
jurisdiction and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval.
Our product candidates could fail to receive regulatory approval for many reasons, including any one or more of the following:
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the FDA, EMA or comparable foreign regulatory authorities may disagree with the design or implementation of our clinical trials;
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we may be unable to demonstrate to the satisfaction of the FDA, EMA or comparable foreign regulatory authorities that a product candidate is safe and effective for its proposed indication;
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the results of clinical trials may not meet the level of statistical significance required by the FDA, EMA or comparable foreign regulatory authorities for approval;
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we may be unable to demonstrate that a product candidates clinical and other benefits outweigh its safety risks;
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the FDA, EMA or comparable foreign regulatory authorities may disagree with our interpretation of data from preclinical studies or clinical trials;
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the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA or other submission or to obtain regulatory approval in the United States or elsewhere;
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the FDA, EMA or comparable foreign regulatory authorities may fail to hold to previous agreements or commitments;
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the FDA, EMA or comparable foreign regulatory authorities may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies;
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the FDA, EMA or comparable foreign regulatory authorities may fail to approve the companion diagnostics we contemplate developing internally or with partners; and
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the approval policies or regulations of the FDA, EMA or comparable foreign regulatory authorities may significantly change in a manner rendering our clinical data insufficient for approval.
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The time and expense of the approval process, as well as the unpredictability of future clinical trial results and other contributing factors, may result in
our failure to obtain regulatory approval to market, in one or more jurisdictions, entrectinib or any other product candidate, which would significantly harm our business, results of operations and prospects.
In order to market and sell our products in any jurisdiction, we or our third party collaborators must obtain separate marketing approvals in that
jurisdiction and comply with its regulatory requirements. The approval procedure can vary drastically among countries, and each jurisdiction may impose different testing and other requirements to obtain and maintain marketing approval. Further, the
time required to obtain those approvals may differ substantially among jurisdictions. In addition, in many countries outside the United States, it is required that the product be approved for reimbursement before the product can be approved for sale
in that country. Moreover, approval by the FDA or an equivalent foreign authority does not ensure approval by regulatory authorities in any other countries or jurisdictions. As a result, the ability to market and sell a product candidate in more
than one jurisdiction can involve significant additional time, expense and effort to undertake separate approval processes, and could subject us and our collaborators to the numerous and varying post-approval requirements of each jurisdiction
governing commercial sales, manufacturing, pricing and distribution of our product candidates. We or any third parties with whom we may collaborate may not have the resources to pursue those approvals, and we or they may not be able to obtain any
approvals that are pursued. The failure to obtain marketing approval for our product candidates in foreign jurisdictions could severely limit their potential markets and our ability to generate revenue.
In addition, even if we were to obtain regulatory approval in one or more jurisdictions, regulatory authorities may approve any of our product candidates for
fewer or more limited indications than we request, may not approve the prices we may propose to charge for our products, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate
with labeling that does not include the claims necessary or desirable for the successful commercialization of that product candidate. Any of the foregoing circumstances could materially harm the commercial prospects for our product candidates.
Our product candidates may cause undesirable side effects or have other properties that could delay or prevent their regulatory approval, limit the
commercial profile of the approved labeling, or result in significant negative consequences following marketing approval, if any.
To date,
patients treated with entrectinib,
RXDX-105
and taladegib have experienced some AEs that are deemed to be drug related. Results of our ongoing or future clinical trials of these or our other product candidates
could reveal a high and/or unacceptable severity and frequency of these or other side effects. In such an event, our trials could be suspended or terminated and the FDA or comparable foreign regulatory authorities could order us to cease further
development of, or deny approval of, our product candidates for any or all targeted indications. Further, any observed drug-related side effects could affect patient recruitment or the ability of
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enrolled patients to complete the trial, or result in potential product liability claims. Any of these occurrences could materially harm our business, financial condition and prospects.
Additionally, if one or more of our product candidates receives marketing approval, and we or others later identify undesirable side effects caused by such
products, a number of potentially significant negative consequences could result, including:
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regulatory authorities may withdraw approvals of such product;
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regulatory authorities may require additional warnings in the products labeling;
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we may be required to create a medication guide for distribution to patients that outlines the risks of such side effects;
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we could be sued and held liable for harm caused to patients; and
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our reputation may suffer.
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Any of these events could prevent us from achieving or maintaining market
acceptance of the particular product, if approved, and could significantly harm our business, results of operations and prospects.
Failure to
successfully validate, develop and obtain regulatory approval for companion diagnostics could harm our drug development strategy and operational results.
As one of the central elements of our business strategy and clinical development approach, we seek to identify molecularly-defined subsets of patients within
a disease category who may derive selective and meaningful benefit from the product candidates we are developing. In order to assist in identifying those subsets of patients, a companion diagnostic, which is a test or measurement that evaluates the
presence of biomarkers in a patient, could be used. We anticipate that the development of companion diagnostics concurrently with some of our product candidates will help us more accurately identify the patients who belong to the target subset, both
during our clinical trials and in connection with the commercialization of product candidates. In June 2015, we announced the release for clinical use of our first clinical trial assay to support patient identification and enrollment into our
Phase 2 clinical trial of entrectinib, but we have not developed or offered any companion diagnostics for commercial use. We may need to rely on third party collaborators to successfully develop and commercialize companion diagnostics. To date, we
have not developed relationships with any such third-party collaborators to develop companion diagnostics for any of our product candidates.
Companion
diagnostics are subject to regulation by the FDA and comparable foreign regulatory authorities as medical devices and require separate regulatory clearance or approval prior to their commercialization. We may be dependent on the sustained
cooperation and effort of any third-party collaborators with whom we may partner in the future to develop and obtain clearance or approval for these companion diagnostics, and we may not be able to establish arrangements with any such third-party
collaborators for the development and production of companion diagnostics when needed or on terms that are beneficial to us, or at all. We and our potential future collaborators may encounter difficulties in developing and obtaining approval for
these companion diagnostics, including issues relating to the selectivity and/or specificity of the diagnostic, analytical validation, reproducibility, or clinical validation. In November 2016, the FDA granted our request to review the Trailblaze
Pharos companion diagnostic test service under the EAP program because it met the three criteria necessary for inclusion in the program, one of which is addressing an unmet clinical need. Once accepted into the EAP program, the FDA will work with
the device sponsor to try to reduce the time and cost from development to an approval decision. Acceptance into the EAP program does not guarantee that a product will be developed or reviewed more quickly, nor does it guarantee approval of the
PMA for Trailblaze Pharos by the FDA. Since FDA generally requires concurrent approval of a companion diagnostic and therapeutic product, any delay or failure by us or our potential future collaborators to develop or obtain regulatory clearance or
approval of any companion diagnostics could delay or prevent approval of our related product candidates. In addition, our potential future collaborators may encounter production difficulties that could constrain the supply of the companion
diagnostics, and we or they may experience difficulties gaining acceptance of the use of the companion diagnostics in the clinical community. In addition, any third parties with whom we may contract to develop and produce companion diagnostics could
decide to discontinue selling or manufacturing the companion diagnostic, and we may not be able to enter into arrangements with other parties to obtain supplies of alternative diagnostic tests on a timely basis or reasonable terms, or at all. The
occurrence of any such event could adversely affect and/or delay the development or commercialization of our product candidates.
We may expend our
limited resources to pursue a particular product candidate or indication that does not produce any commercially viable products and may fail to capitalize on product candidates or indications that may be more profitable or for which there is a
greater likelihood of success.
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Because we have limited financial and managerial resources, we must focus our efforts on particular product
candidates for specific indications. As a result, we may forego or delay pursuit of opportunities with other product candidates or for other indications that later prove to have greater commercial potential. Further, our resource allocation
decisions may result in our use of funds for research and development programs and product candidates for specific indications that may not yield any commercially viable products. If we do not accurately evaluate the commercial potential or target
market for a particular product candidate, we may relinquish valuable rights to that product candidate through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to retain sole
development and commercialization rights to such product candidate. Any such failure to properly assess potential product candidates could result in missed opportunities and/or our focus on product candidates with low market potential, which would
harm our business and financial condition.
We may not be able to obtain orphan drug exclusivity for the product candidates for all indications for
which we seek or receive regulatory approval, which could limit the potential profitability of such product candidates.
Regulatory authorities in
some jurisdictions, including the United States and Europe, may designate drugs for relatively small patient populations as orphan drugs. Under the Orphan Drug Act, the FDA may designate a product as an orphan drug if it is a drug intended to treat
a rare disease or condition, which is generally defined as a patient population of fewer than 200,000 individuals in the United States. Generally, if a product with an orphan drug designation subsequently receives the first marketing approval for
the indication for which it receives the designation, then the product is entitled to a period of marketing exclusivity that precludes the applicable regulatory authority from approving another marketing application for the same drug for the
exclusivity period for the same indication, except in limited situations.
The FDA and the EMA have granted us orphan drug designation for entrectinib for
the treatment of neuroblastoma, and the FDA has granted us orphan drug designation for entrectinib for the treatment of TRKA-positive, TRKB-positive, TRKC-positive,
ROS1-positive
or
ALK-positive
non-small
cell lung cancer and colorectal cancer. We expect that we may in the future pursue orphan drug designations for entrectinib in other jurisdictions
and/or indications, and for at least some of our other product candidates. Obtaining orphan drug designations can be difficult and we may not be successful in doing so. In addition, orphan drug exclusivity may not effectively protect a product from
the competition of different drugs for the same indication, which could be approved during the exclusivity period. Further, after an orphan designated drug is approved and if it obtains orphan drug exclusivity, the FDA could subsequently approve
another application for the same drug for the same indication if the FDA concludes that the later drug is shown to be safer, more effective or makes a major contribution to patient care. The failure to obtain an orphan drug designation for any
product candidates for rare cancer indications for which we seek or receive regulatory approval, and/or the inability to maintain that designation for the duration of the applicable exclusivity period, could reduce our ability to make sufficient
sales of the applicable product candidate to balance our expenses incurred to develop it, which would have a negative impact on our operational results and financial condition.
Our product candidates are in various stages of development and may never be fully developed in a manner suitable for commercialization. If we do not
develop commercially successful products, our ability to generate revenue will be limited.
We currently have no products that are approved for
commercial sale. All of our product candidates are in various stages of development, and significant research and development, financial resources and personnel will be required to develop commercially viable products and obtain regulatory
approvals. Further, certain of the indications that we are pursuing have relatively low incidence rates, which may make it difficult for us to enroll a sufficient number of patients in our clinical trials on a timely basis, or at all, and may limit
the revenue potential of our product candidates. If we are unable to develop, receive approval for, or successfully commercialize any of our product candidates, we may be unable to generate meaningful revenue from product sales and will incur
continued net losses and negative cash flows.
If we seek and obtain a fast track or breakthrough therapy designation or accelerated approval by the
FDA for any of our product candidates, such designations may not actually lead to a faster development or regulatory review or approval process or any other material benefits.
We may in the future seek fast track designation for some of our product candidates that reach the regulatory review process. If a product candidate is
intended for the treatment of a serious or life-threatening condition and the product candidate demonstrates the potential to address unmet medical needs for this condition, the sponsor may apply to the FDA for a fast track designation for the
product candidate. If fast track designation is obtained, the FDA may initiate review of sections of an NDA before the application is complete. This rolling review is available if the applicant provides and the FDA approves a schedule
for the remaining information. In addition, a fast track product may be eligible for accelerated approval, as described below. The FDA has broad discretion over whether to grant a fast track designation and, as a result, even our product candidates
that may be eligible for such a designation may not receive it. Even if we were to receive fast track designation for any of our product candidates, the designation may not result in a
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materially faster development process, review or approval compared to conventional FDA procedures. Additionally, the FDA could withdraw a fast track designation if it believes that the
designation is no longer supported by data from our clinical development program.
Additionally, we may in the future seek a breakthrough therapy
designation for our product candidates. The Food and Drug Administration Safety and Innovation Act established the breakthrough therapy designation for drugs intended, alone or in combination with one or more other drugs, to treat a serious or
life-threatening disease or condition, and that, as indicated by preliminary clinical evidence, may demonstrate substantial improvement over existing therapies on one or more clinically significant endpoints, such as substantial treatment effects
observed early in clinical development. Drugs designated as breakthrough therapies by the FDA are eligible for accelerated approval and increased interaction and communication with the FDA designed to expedite the development and review process.
As with fast track designation, designation as a breakthrough therapy is within the discretion of the FDA. Accordingly, even if we believe one of our
product candidates meets the criteria for designation as a breakthrough therapy, the FDA may disagree and may determine not to grant such a designation. Even if we receive a breakthrough therapy designation for any of our product candidates, the
designation may not result in a materially faster development process, review or approval compared to conventional FDA procedures. Further, obtaining a breakthrough therapy designation does not assure or increase the likelihood of the FDAs
approval of the applicable product candidate. In addition, even if one or more of our product candidates qualifies as a breakthrough therapy, the FDA could later determine that those products no longer meet the conditions for the designation or
determine not to shorten the time period for FDA review or approval.
We may also in the future seek accelerated approval for some of our product
candidates. Under the FDAs accelerated approval regulations, the FDA may approve a drug for a serious or life-threatening disease or condition that provides meaningful therapeutic benefit to patients over existing treatments and demonstrates
an effect based upon a surrogate endpoint that is reasonably likely to predict clinical benefit, or on a clinical endpoint that can be measured earlier than irreversible morbidity or mortality that is reasonably likely to predict an effect on
irreversible morbidity or mortality or other clinical benefit, taking into account the severity, rarity, or prevalence of the condition and the availability or lack of alternative treatments. In clinical trials, a surrogate endpoint is a marker,
such as a laboratory measurement, radiographic image, physical sign, or other measure that is thought to predict clinical benefit, but is not itself a measure of clinical benefit. Surrogate endpoints can often be measured more easily or sooner than
clinical endpoints. As with fast track designation and breakthrough therapy designation, the FDA has broad discretion over whether to grant approval based on a surrogate endpoint. Accordingly, even if we believe one of our product candidates meets
the criteria for accelerated approval, the FDA may disagree and may determine not to grant such approval.
In addition, a product candidate approved on
such an accelerated basis is subject to rigorous post-marketing compliance requirements, including the completion of Phase 4 or post-approval clinical trials to confirm the effect on the clinical endpoint. Failure to conduct required post-approval
studies, or to validate the surrogate endpoint or otherwise confirm a clinical benefit during post-marketing studies, would allow the FDA to withdraw the drug from the market on an expedited basis.
The FDA has granted rare pediatric disease designation to entrectinib for the treatment of neuroblastoma; however, an NDA for entrectinib, if approved,
may not meet the eligibility criteria for a priority review voucher.
The FDA has granted rare pediatric disease designation to entrectinib for
the treatment of neuroblastoma. Designation of a drug as a drug for a rare pediatric disease does not guarantee that an NDA for such drug will meet the eligibility criteria for a rare pediatric disease priority review voucher at the time the
application is approved. Under the FDCA, we will need to request a rare pediatric disease priority review voucher in our original NDA for entrectinib. The FDA may determine that an NDA for entrectinib, if approved, does not meet the eligibility
criteria for a priority review voucher, including for the following reasons:
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neuroblastoma no longer meets the definition of a rare pediatric disease;
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the NDA contains an active ingredient (including any ester or salt of the active ingredient) that has been previously approved in an NDA;
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the NDA is not deemed eligible for priority review;
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the NDA does not rely on clinical data derived from studies examining a pediatric population and dosages of the drug intended for that population (that is, if the NDA does not contain sufficient clinical data to allow
for adequate labeling for use by the full range of affected pediatric patients); or
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the NDA is approved for a different adult indication than the rare pediatric disease for which entrectinib is designated (for example, if entrectinib is approved for an indication based on specific genetic alterations
that would be inclusive of but not limited to neuroblastoma).
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The authority for the FDA to award rare pediatric disease priority review
vouchers for drugs that have received rare pediatric disease designation prior to September 30, 2020 currently expires on September 30, 2022. If the NDA for entrectinib is not approved prior to September 30, 2022 for any reason,
regardless of whether it meets the criteria for a rare pediatric disease priority review voucher, it will not be eligible for a priority review voucher. However, it is also possible the authority for FDA to award rare pediatric disease priority
review vouchers will be further extended through Federal lawmaking.
Risks Related to Our Dependence on Third Parties
We rely on third parties to conduct preclinical and clinical trials of our product candidates. If these third parties do not successfully carry out their
contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval for or commercialize our product candidates and our business could be substantially harmed.
We rely, and expect to continue to rely, upon third-party CROs to execute our preclinical and clinical trials and to monitor and manage data produced by and
relating to those trials. However, we may not be able to establish arrangements with CROs when needed or on terms that are acceptable to us, or at all, which could negatively affect our development efforts with respect to our drug product candidates
and materially harm our business, operations and prospects.
We currently have only limited control over the activities of the CROs we have engaged to
continue the ongoing and planned clinical trials for entrectinib,
RXDX-105
and taladegib, and we expect the same to be true for any CROs we may engage in the future. Nevertheless, we are responsible for
ensuring that each of our studies is conducted in accordance with the applicable protocol, legal, regulatory and scientific standards, and our reliance on any CRO does not relieve us of our regulatory responsibilities. Based on our present
expectations, we, our CROs and our clinical trial sites are required to comply with good clinical practices, or GCPs, for all of our product candidates in clinical development. Regulatory authorities enforce GCPs through periodic inspections of
trial sponsors, principal investigators and trial sites. If we or any of our CROs fail to comply with applicable GCPs, the clinical data generated in the applicable trial may be deemed unreliable and the FDA or comparable foreign regulatory
authorities may require us to perform additional clinical trials before approving a product candidate for marketing, which we may not have sufficient cash or other resources to support and which would delay our ability to generate revenue from any
sales of such product candidate. In addition, our clinical trials are required to be conducted with product produced in compliance with current good manufacturing practice requirements, or cGMPs. Our or our CROs failure to comply with those
regulations may require us to repeat clinical trials, which would also require significant cash expenditures and delay the regulatory approval process.
Agreements governing relationships with CROs generally provide those CROs with certain rights to terminate the agreements under specified circumstances. If a
CRO that we have engaged terminates its relationship with us during the performance of a clinical trial, we would be forced to seek an engagement with a substitute CRO, which we may not be able to do on a timely basis or on commercially reasonable
terms, if at all, and the applicable trial would experience delays or may not be completed and would likely increase in cost. In addition, our CROs are not our employees, and except for remedies available to us under any agreements we enter with
them, we are unable to control whether or not they devote sufficient time and resources to our clinical and preclinical programs. If CROs do not successfully carry out their contractual duties or obligations or meet expected deadlines, if they need
to be replaced or if the quality or accuracy of the clinical data they obtain is compromised due to a failure to adhere to our clinical protocols, regulatory requirements or for other reasons, our clinical trials may be extended, delayed or
terminated and we may not be able to obtain regulatory approval for, or successfully commercialize, the affected product candidates. As a result, our operations and the commercial prospects for the affected product candidates would be harmed, our
costs could increase and our ability to generate revenues could be delayed.
We plan to rely solely on third parties to manufacture our preclinical
and clinical drug supplies and any approved product candidates, and our operations could be harmed if those third parties fail to provide sufficient quantities of product in accordance with applicable regulatory and contractual obligations or if we
are otherwise unable to secure sufficient quantities.
We do not currently have, nor do we plan to acquire, the infrastructure or capability
internally to manufacture our preclinical and clinical drug supplies for use in the conduct of our preclinical studies and clinical trials or commercial quantities of any product candidates that may obtain regulatory approval. As a result, we expect
that we will need to rely solely on third-party manufacturers for those services. We have a limited number of supply arrangements for entrectinib, and we are currently reliant on a single contract manufacturer for the clinical supply of
RXDX-105.
In addition, we have only a limited clinical supply of taladegib, and we must seek to establish clinical supply agreements with third parties for future supplies. We do not currently have arrangements in
place for commercial supply of bulk drug substance or drug products. We may not be able to establish these or any other supply relationship
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when needed, on reasonable terms, or at all, in particular given the limited number of qualified third-party manufacturers and existing limitations on their production capacity. Any failure to
secure sufficient supply of our product candidates for preclinical or clinical testing or, in the future, commercial purposes would materially harm our operations and financial results.
We expect that the facilities to be used by any contract manufacturers we engage to manufacture our product candidates will be inspected by the FDA in
connection with any NDA that we submit. We do not control the manufacturing process of, and are and will continue to be dependent on, our contract manufacturing partners for compliance with cGMPs for the manufacture of clinical and, if regulatory
approval is obtained, commercial quantities of our product candidates. If any of our contract manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA or other
comparable foreign authorities, we would be prevented from obtaining regulatory approval for our product candidates or commercializing our products, if approved, unless and until we could engage a substitute contract manufacturer that could comply
with such requirements, which we may not be able to do. In recent years, the FDA has issued complete response letters and declined to approve marketing applications submitted by various companies due to adverse findings at the contract
manufacturers facilities that were identified in connection with
pre-approval
or other inspections at these facilities. Any such failure by any of our contract manufacturers would significantly
impact our ability to continue to develop, obtain regulatory approval for or market our product candidates, if approved.
We expect to rely on our
manufacturers to purchase from third-party suppliers the materials necessary to produce our product candidates for our preclinical studies and clinical trials or for commercial sale. We do not have, nor do we expect to enter, any agreements for the
production of these raw materials, and we do not expect to have any control over the process or timing of our manufacturers acquisition of raw materials needed to produce our product candidates. Any significant delay in the supply of a product
candidate or the raw material components thereof for an ongoing preclinical study or clinical trial due to a manufacturers need to replace a third-party supplier of raw materials could considerably delay completion of our clinical trials,
product testing and potential regulatory approval of our product candidates. Additionally, if our manufacturers or we are unable to purchase these raw materials to commercially produce any of our product candidates that gain regulatory approval, the
commercial launch of our product candidates would be delayed or there would be a shortage in supply, which would impair our ability to generate revenues from the sale of our product candidates.
Risks Related to Any Commercialization of Our Product Candidates
Even if we receive regulatory approval for any of our product candidates, we will be subject to ongoing regulatory obligations and review. Maintaining
compliance with ongoing regulatory requirements may result in significant additional expense to us, and any failure to maintain such compliance could subject us to penalties and cause our business to suffer.
Any regulatory approvals that we receive for our product candidates may be subject to limitations on the approved indicated uses for which the product may be
marketed, or contain requirements for potentially costly post-marketing testing, including Phase 4 clinical trials, and surveillance to monitor the safety and efficacy of the product. In addition, if the FDA, EMA or a comparable foreign regulatory
authority approves any of our product candidates, the manufacturing processes, labeling, packaging, distribution, AE reporting, storage, advertising, promotion and recordkeeping for the product will be subject to extensive and ongoing regulatory
requirements. These requirements include submissions of safety and other post-marketing information and reports, as well as continued compliance with cGMPs and cGCPs for any clinical trials that we conduct post-approval. Later discovery of
previously unknown problems with a product, including AEs of unanticipated severity or frequency, or with our third-party manufacturers or manufacturing processes, or failure to comply with regulatory requirements, may result in, among other things:
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restrictions on the marketing or manufacturing of the product, product recalls or complete withdrawal of the product from the market;
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fines, warning or untitled letters or holds on post-approval clinical trials;
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refusal of the FDA to approve pending applications or supplements to approved applications, or suspension or revocation of product license approvals;
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product seizure or detention, or refusal to permit the import or export of products; and
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consent decrees, injunctions or the imposition of civil or criminal penalties.
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The FDAs or EMAs policies may change and additional government regulations may be enacted that could
prevent, limit or delay regulatory approval of our product candidates. For example, in December 2016, the 21st Century Cures Act, or Cures Act, was signed into law. The Cures Act, among other things, is intended to modernize the regulation of drugs,
biologics, and devices and to spur innovation, but its ultimate implementation is unclear. If we are slow or unable to adapt to changes in existing requirements or the adoption of new requirements or policies, or if we are otherwise not able to
maintain regulatory compliance, we may lose any marketing approval that we may have obtained, which would adversely affect our business, prospects and ability to achieve or sustain profitability.
In addition, we also cannot predict the likelihood, nature or extent of government regulation that may arise from future legislation or administrative or
executive action, either in the United States or abroad. For example, certain policies of the Trump administration may impact our business and industry. Namely, the Trump administration has taken several executive actions, including the issuance of
a number of Executive Orders, that could impose significant burdens on, or otherwise materially delay, FDAs ability to engage in routine regulatory and oversight activities such as implementing statutes through rulemaking, issuance of
guidance, and review and approval of marketing applications. Notably, on January 23, 2017, President Trump ordered a hiring freeze for all executive departments and agencies, including the FDA, which prohibits the FDA from filling employee
vacancies or creating new positions. Under the terms of the order, the freeze will remain in effect until implementation of a plan to be recommended by the Director for the Office of Management and Budget, or OMB, in consultation with the Director
of the Office of Personnel Management, to reduce the size of the federal workforce through attrition. Although certain positions at the FDA may be exempt from the freeze, an under-staffed FDA could result in delays in FDAs responsiveness or in
its ability to review submissions or applications, issue regulations or guidance, or implement or enforce regulatory requirements in a timely fashion or at all. Moreover, on January 30, 2017, President Trump issued an Executive Order,
applicable to all executive agencies, including the FDA, that requires that for each notice of proposed rulemaking or final regulation to be issued in fiscal year 2017, the agency shall identify at least two existing regulations to be repealed,
unless prohibited by law. These requirements are referred to as the
two-for-one
provisions. This Executive Order includes a budget neutrality provision that
requires the total incremental cost of all new regulations in the 2017 fiscal year, including repealed regulations, to be no greater than zero, except in limited circumstances. For fiscal years 2018 and beyond, the Executive Order requires agencies
to identify regulations to offset any incremental cost of a new regulation and approximate the total costs or savings associated with each new regulation or repealed regulation. In interim guidance issued by the Office of Information and Regulatory
Affairs within OMB on February 2, 2017, the administration indicates that the
two-for-one
provisions may apply not only to agency regulations, but also
to significant agency guidance documents. It is difficult to predict how these requirements will be implemented, and the extent to which they will impact the FDAs ability to exercise its regulatory authority. If these executive actions impose
constraints on FDAs ability to engage in oversight and implementation activities in the normal course, our business may be negatively impacted.
We currently have limited marketing personnel and no sales force. If we are unable to establish effective marketing and sales capabilities or enter into
agreements with third parties to market and sell our product candidates, we may not be able to effectively market and sell our product candidates, if approved, or generate product revenues.
We currently have limited marketing personnel and no sales team for the marketing, sales and distribution of any of our product candidates that are able to
obtain regulatory approval. In order to commercialize any product candidates, we must build on a
territory-by-territory
basis marketing, sales, distribution, managerial
and other
non-technical
capabilities or make arrangements with third parties to perform these services, and we may not be successful in doing so. If we further develop these capabilities internally, the
process will be expensive and time consuming and will require significant attention of our executive officers to manage. If we choose to collaborate, either globally or on a
territory-by-territory
basis, with third parties that have direct sales forces and established distribution systems, either to augment our own sales force and
distribution systems or in lieu of our own sales force and distribution systems, we may be unable to enter into such arrangements when needed on acceptable terms or at all and we are likely to have limited control over the efforts of our
collaborators. If we are not successful in commercializing our product candidates, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we may incur significant additional losses.
Our commercial success depends upon attaining significant market acceptance of our product candidates, if approved, among physicians, patients,
healthcare payers and operators of major cancer clinics.
Even if we obtain regulatory approval for our product candidates, the products may not
gain market acceptance among physicians, health care payers, patients and the medical community, which is critical to commercial success. Market acceptance of any product candidate for which we receive approval depends on a number of factors,
including:
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the efficacy and safety as demonstrated in clinical trials;
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the timing of market introduction of the product candidate, any associated companion diagnostic, and/or competitive products;
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the clinical indications for which the drug is approved;
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the approval, availability, market acceptance and reimbursement for any companion diagnostic;
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the ability of a companion diagnostic to successfully identify all tested patients that harbor the underlying molecular biomarker that our product targets;
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acceptance of the drug as a safe and effective treatment by physicians, operators of major cancer clinics and patients;
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the size of the markets for the product candidate, based on the size of the patient subsets that we are targeting, in the territories for which we gain regulatory approval and have commercial rights;
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the potential and perceived advantages of the product candidate over alternative treatments, especially with respect to patient subsets that we are targeting with the product candidate;
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the safety of the product candidate as demonstrated through broad commercial use including, potentially, under conditions not tested in clinical trials;
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the cost of treatment in relation to alternative treatments;
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the availability of adequate reimbursement and pricing by third-party payers and government authorities;
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relative convenience and ease of administration;
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the prevalence and severity of adverse side effects; and
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the effectiveness of our sales, marketing and distribution efforts.
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If our product candidates are approved
but fail to achieve an adequate level of acceptance by key market participants, we will not be able to generate significant revenues, and we may not become or remain profitable.
We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete
effectively.
The biotechnology and pharmaceutical industries are intensely competitive and subject to rapid and significant technological change.
In addition, competition in the oncology market is intense. We have competitors both in the United States and internationally, including major multinational pharmaceutical companies, biotechnology companies and universities and other research
institutions.
With respect to entrectinib, we are aware that Loxo Oncology is developing larotrectnib
(LOXO-101)
for patients with
TRK-positive
solid tumors, and has initiated a Phase 2 basket trial in adult cancer patients whose tumors harbor TRK fusions and a Phase 1/1b trial in pediatric cancer patients. We are also
aware of three agents that have been approved by the FDA for
ALK-positive
NSCLC Pfizers Xalkori
®
/crizotinib, Novartis Zykadia
®
/ceritinib and Roches Alecensa
®
/alectinib. Alectinib is also approved for this indication in Japan. In addition, we are aware that
Pfizers Xalkori
®
/crizotinib has also been approved by the FDA for ROS1-positive NSCLC.
With respect to taladegib, we are aware of two agents that have been approved by the FDA to treat basal cell carcinoma and are designed to selectively inhibit
the hedgehog pathway by binding the smoothened protein: Genentechs Erivedge
®
/vismodegib and Novartis Odomzo
®
/sonidegib.
We are also aware of several other products in development targeting TRKA, TRKB, TRKC, ROS1, ALK, Hedgehog/Smoothened, RET, TYRO3, AXL, MER, and/or
c-MET
for the treatment of cancer, some of which may be in a more advanced stage of development than our product candidates. There are also many other compounds directed to other molecular targets that are in
clinical development by a variety of companies to treat cancer types that we may choose to pursue with our programs.
Many of our competitors have
substantially greater financial, technical and other resources than we do, such as larger research and development staff and experienced marketing and manufacturing organizations. Mergers and acquisitions in the biotechnology and
39
pharmaceutical industries may result in even more resources being concentrated in certain of our competitors. As a result of these or other factors, these companies may be able to obtain
regulatory approval more rapidly than we can and may be more effective in selling and marketing their products. Smaller or early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with
large, established companies. Competition may increase further as a result of advances in the commercial applicability of technologies and greater availability of capital for investment in these industries. Our competitors may succeed in developing,
acquiring or licensing drug products that are more effective or less costly to produce or purchase on the market than any product candidate we are currently developing or that we may seek to develop in the future. If approved, our product candidates
will face competition from commercially available drugs as well as drugs that are in the development pipelines of our competitors.
Established
pharmaceutical companies may invest heavily to accelerate discovery and development of or
in-license
novel compounds that could make our product candidates less competitive. In addition, any new product that
competes with an approved product must demonstrate compelling advantages in efficacy, convenience, tolerability and safety in order to overcome price competition and to be commercially successful. Our competitors may succeed in obtaining patent
protection, receiving FDA, EMA or other regulatory approvals, or discovering, developing and commercializing medicines before we do, which would have a material adverse impact on our business and ability to achieve profitability from future sales of
our approved product candidates, if any.
Coverage and reimbursement may be limited or unavailable in certain market segments for our product
candidates, which could make it difficult for us to sell on a profitable basis any product candidates for which we obtain marketing approvals.
There is significant uncertainty related to the third-party coverage and reimbursement of newly approved drugs and companion diagnostics. Market acceptance
and sales of any of our product candidates that obtain regulatory approval in domestic or international markets will depend significantly on the availability of adequate coverage and reimbursement from third-party payers and may be affected by
existing and future healthcare reform measures.
Pricing and reimbursement for any of our approved product candidates is uncertain. Government authorities
and other third-party payers decide which drugs and laboratory tests they will pay for and establish reimbursement levels for them, and obtaining coverage and reimbursement approval for a product from any such third-party payer is a time consuming
and costly process. Adoption of our product candidates by the medical community may be limited if doctors, patients and other key market participants do not receive adequate partial or full reimbursement for our approved products. As a result, any
denial of private or government payer coverage or inadequate reimbursement for use of our approved product candidates could harm our business and diminish our prospects for generating revenue.
In some foreign countries, particularly in the European Union, the pricing of prescription pharmaceuticals is subject to governmental control. In these
countries, pricing negotiations with governmental authorities can be a long and expensive process after the receipt of marketing approval for a product candidate. To obtain reimbursement or pricing approval in some countries, we may be required to
conduct additional clinical trials that compare the cost-effectiveness of our product candidates to other available therapies. If reimbursement of our product candidates is unavailable or limited in scope or amount in a particular country, or if
pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability for sales of any of our product candidates that are approved for marketing in that country.
Healthcare legislative reform measures may have a material adverse effect on our business and results of operations.
There have been, and may continue to be, legislative and regulatory proposals at the federal and state levels and in foreign jurisdictions directed at
broadening the availability and containing or lowering the cost of healthcare. The continuing efforts of the government, insurance companies, managed care organizations and other payers to contain or reduce costs of healthcare may adversely affect
our ability to set prices for our products that would allow us to achieve or sustain profitability. In addition, governments may impose price controls on any of our product candidates that obtain marketing approval, which may adversely affect our
future profitability.
In the United States, there have been and continue to be a number of legislative initiatives to contain healthcare costs. For
example, in March 2010, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or the Affordable Care Act, was passed, which substantially changed the way health care is financed by both
governmental and private insurers, and significantly impacted the U.S. pharmaceutical industry. The Affordable Care Act, among other things, increased the minimum Medicaid rebates owed by manufacturers under the Medicaid Drug Rebate Program and
extended the rebate program to individuals enrolled in Medicaid managed care organizations, established annual fees and taxes on manufacturers of certain branded prescription drugs, and established a new Medicare Part D coverage gap discount
program, in which manufacturers must agree to offer
40
50%
point-of-sale
discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their
coverage gap period, as a condition for the manufacturers outpatient drugs to be covered under Medicare Part D.
We expect that the new presidential
administration and U.S. Congress will seek to modify, repeal, or otherwise invalidate all, or certain provisions of, the Affordable Care Act. Since taking office, President Trump has continued to support the repeal of all or portions of the
Affordable Care Act. In January 2017, the House and Senate passed a budget resolution that authorizes congressional committees to draft legislation to repeal all or portions of the Affordable Care Act and permits such legislation to pass with a
majority vote in the Senate. President Trump has also recently issued an executive order in which he stated that it is his administrations policy to seek the prompt repeal of the Affordable Care Act and directed executive departments and
federal agencies to waive, defer, grant exemptions from, or delay the implementation of the provisions of the Affordable Care Act to the maximum extent permitted by law. There is still uncertainty with respect to the impact President Trumps
administration and the U.S. Congress may have, if any, and any changes will likely take time to unfold, and could have an impact on coverage and reimbursement for healthcare items and services covered by plans that were authorized by the Affordable
Care Act. However, we cannot predict the ultimate content, timing or effect of any healthcare reform legislation or the impact of potential legislation on us.
In addition, other legislative changes have been proposed and adopted in the United States since the Affordable Care Act was enacted. These changes include
aggregate reductions of Medicare payments to providers of 2% per fiscal year, which went into effect on April 1, 2013 and, due to subsequent legislative amendments to the statute, will remain in effect through 2025 unless additional
Congressional action is taken. On January 2, 2013, the American Taxpayer Relief Act of 2012 was signed into law, which, among other things, further reduced Medicare payments to several types of providers, including hospitals, imaging centers
and cancer treatment centers, and increased the statute of limitations period for the government to recover overpayments to providers from three to five years. Recently there has also been heightened governmental scrutiny over the manner in which
manufacturers set prices for their marketed products, which has resulted in several Congressional inquiries and proposed bills designed to, among other things, bring more transparency to product pricing, review the relationship between pricing and
manufacturer patient programs, and reform government program reimbursement methodologies for drug products.
Moreover, payment methodologies, including
payment for companion diagnostics, may be subject to changes in healthcare legislation and regulatory initiatives. For example, CMS began bundling the Medicare payments for certain laboratory tests ordered while a patient received services in a
hospital outpatient setting. Additionally, on April 1, 2014, the Protecting Access to Medicare Act of 2014, or PAMA, was signed into law, which, among other things, significantly alters the current payment methodology under the CLFS. Under the
new law, starting January 1, 2017 and every three years thereafter (or annually in the case of advanced diagnostic lab tests), clinical laboratories must report laboratory test payment data for each Medicare-covered clinical diagnostic lab test
that it furnishes during a time period to be defined by future regulations. The reported data must include the payment rate (reflecting all discounts, rebates, coupons and other price concessions) and the volume of each test that was paid by each
private payer (including health insurance issuers, group health plans, Medicare Advantage plans and Medicaid managed care organizations). Beginning in 2018, the Medicare payment rate for each clinical diagnostic lab test, with some exceptions, will
be equal to the weighted median private payer payment for the test, as calculated using data collected by applicable laboratories during the data collection period and reported to CMS during a specified data reporting period. Also under PAMA, CMS is
required to adopt temporary billing codes to identify new clinical diagnostic laboratory tests and advanced diagnostic laboratory tests that do not already have unique diagnostic codes, and that have been cleared or approved by the FDA.
We expect that additional state and federal healthcare reform measures will be adopted in the future, any of which could limit the amounts that federal and
state governments will pay for healthcare products and services, which could result in reduced demand for our drug candidates or companion diagnostics or additional pricing pressures.
We could be subject to product liability lawsuits based on the use of our product candidates in clinical testing or, if obtained, following marketing
approval and commercialization. If product liability lawsuits are brought against us, we may incur substantial liabilities and may be required to cease clinical testing or limit commercialization of our product candidates.
We could be subject to product liability lawsuits if any product candidate we develop allegedly causes injury or is found to be otherwise unsuitable for human
use during product testing, manufacturing, marketing or sale. Any such product liability claims may include allegations of defects in manufacturing, defects in design, a failure to warn of dangers inherent in the product, negligence, strict
liability, breach of warranties or other claims. Claims could also be asserted under state consumer protection acts or other laws. If we cannot successfully defend ourselves against product liability claims, we may incur substantial liabilities or
be required to limit clinical testing of our product candidates or commercialization, if approved. Even successful defense would require significant financial and management resources. Regardless of the merits or eventual outcome, liability claims
may result in:
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decreased demand for our product candidates;
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injury to our reputation;
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withdrawal of clinical trial participants;
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initiation of investigations by regulators;
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costs to defend the related litigation;
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a diversion of managements time and our resources;
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substantial monetary awards to trial participants or patients;
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product recalls, withdrawals or labeling, marketing or promotional restrictions;
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loss of revenues from product sales; and
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the inability to commercialize our product candidates.
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Our inability to retain sufficient product liability
insurance at an acceptable cost to protect against potential product liability claims could prevent or inhibit the clinical testing and commercialization of products we develop. We have obtained product liability insurance covering our clinical
trials of entrectinib,
RXDX-105
and taladegib, as well as our terminated clinical trial of
RXDX-107.
We may wish to obtain additional such insurance should we seek to
expand those clinical trials or commence new clinical trials. We also may determine that additional types and amounts of coverage would be desirable at later stages of clinical development of our product candidates or upon commencing
commercialization of any product candidate that obtains required approvals. However, we may not be able to obtain any such additional insurance coverage when needed on acceptable terms, or at all. We could be responsible for some or all of the
financial costs associated with a product liability claim relating to our development or commercialization activities, in the event that any such claim results in a court judgment or settlement in an amount or of a type that is not covered, in whole
or in part, by any insurance policies we may have or that is in excess of the limits of our insurance coverage. We may not have, or be able to obtain, sufficient capital to pay any such amounts that may not be covered by our insurance policies.
Risks Related to Our Intellectual Property
If we
breach any of the agreements under which we license from third parties the development and commercialization rights to our product candidates, we could lose license rights that are important to our business and our operations could be materially
harmed.
We have
in-licensed
from NMS the use, development and commercialization rights for our
entrectinib program. We have
in-licensed
from Lilly the use, development and commercialization rights for our taladegib programs, and we have assumed license agreements from Teva that include rights and
obligations relating to our
RXDX-105
and
RXDX-106
programs. As a result, our current business plans are dependent upon our satisfaction of certain conditions to the
maintenance of those license agreements and the rights we license under them. Each of the license agreements provides that we are subject to diligence obligations relating to the commercialization and development of product candidates, milestone
payments, royalty payments and other obligations. In addition to these license agreements, we may seek to enter into additional agreements with other third parties in the future granting similar license rights with respect to other potential product
candidates. If we fail to comply with any of the conditions or obligations or otherwise breach the terms of any of these license agreements, or any future license agreement we may enter on which our business or product candidates are dependent, the
licensor may have the right to assert a claim for damages against us or terminate the applicable agreement in whole or in part and thereby extinguish our rights to the licensed technology and intellectual property and/or any rights we have acquired
to develop and commercialize certain product candidates. If we become liable for material damages under any of these license agreements, this could materially harm our business, prospects, financial condition and results of operations. Similarly,
the loss of the rights licensed to us under these license agreements, or any future license agreement that we may enter granting us rights on which our business or product candidates are dependent, would eliminate our ability to further develop the
applicable product candidates and would materially harm our business, prospects, financial condition and results of operations.
If our efforts to
protect the proprietary nature of the intellectual property related to our technologies are not adequate, we may not be able to compete effectively in our markets and our business would be harmed.
We rely upon a combination of patents, trade secret protection and confidentiality agreements to protect the intellectual property related to our
technologies. The breadth, validity and enforceability of patents in the biotechnology and pharmaceutical field involves
42
complex legal and scientific questions and can be uncertain. The standards of patentability and patent eligibility for diagnostic methods, personalized medicine, and biotechnology inventions are
evolving and to some extent uncertain, and subject matter that is presently considered to be patentable may not be patentable (and patents directed thereto might not be valid) in the future. It is possible that we will fail to identify patentable
aspects of our development activities before it is too late to obtain patent protection. There may be prior art of which we are not aware that may affect the breadth, validity or enforceability of our patents and patent applications. There also
may be prior art of which we are aware, but which we do not believe affects the breadth, validity or enforceability of our patents, which may, nonetheless, ultimately be found to affect the breadth, validity or enforceability of our patents. The
patent applications we own or license may fail to result in issued patents in the United States or in foreign countries. Third parties may challenge the inventorship, ownership, breadth, validity, or enforceability of any issued patents we own or
license or any patent applications that may issue as patents in the future, which may result in those patents being narrowed, invalidated or held unenforceable or the patent applications failing to issue as patents. Even if they are unchallenged,
our patents and patent applications may not adequately protect our intellectual property or prevent others from developing similar products that do not fall within the scope of our patents. We may be required to disclaim part or all of the subject
matter and/or term of certain patents or all of the subject matter and/or patent term of certain of our patents and patent applications. If the inventorship, ownership, breadth, validity, or enforceability of the patents we own or license is
threatened, our ability to effectively commercialize any product candidates with technology protected by those patents could be threatened. Further, if we encounter delays in our clinical trials, the period of time during which we would have patent
protection for any covered product candidates after obtaining regulatory approval would likely be reduced. Since patent applications filed in the United States and most other countries are confidential for a period of time after filing, we cannot be
certain at the time of filing such applications that we or our licensors are the first to file any patent application related to our product candidates.
Recent patent reform legislation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or
defense of our issued patents. On September 16, 2011, the Leahy-Smith America Invents Act, or the Leahy-Smith Act, was signed into law. The Leahy-Smith Act includes a number of significant changes to U.S. patent law. These include provisions
that affect the way patent applications are prosecuted and may also affect patent litigation. The United States Patent and Trademark Office, or USPTO, recently developed new regulations and procedures to govern administration of the Leahy-Smith Act,
and many of the substantive changes to patent law associated with the Leahy-Smith Act, and in particular, the first to file provisions, only became effective on March 16, 2013. Accordingly, it is not clear what, if any, impact the Leahy-Smith
Act will have on the operation of our business. However, the Leahy-Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued
patents, all of which could have a material adverse effect on our business, financial condition and prospects.
Our license agreements relating to our
entrectinib,
RXDX-105,
RXDX-106
and taladegib development programs grant us exclusive, worldwide licenses under a portfolio of patents and patent applications directed
to the licensed development programs. We own the rights to composition of matter patents and patent applications directed to our
RXDX-106
and
RXDX-107
programs. The
composition of matter patents in the United States expire in 2029 for the issued patent relating to entrectinib, in 2030 for the issued patent relating to
RXDX-105,
in 2032 for the issued patent relating to
RXDX-106,
in 2033 for the issued patent relating to
RXDX-107,
and in 2031 for the issued patent relating to taladegib. While patent term extensions under the Hatch-Waxman Act
in the United States and under supplementary protection certificates in Europe may be available to extend our patent exclusivity for any of these product candidates, the applicable patents may not meet the specified conditions for eligibility for
any such term extension and, even if eligible, we may not be able to obtain any such term extension. Further, we may elect to pursue patent protection relating to our product candidates only in certain jurisdictions. As a result, competitors would
be permitted to use our technologies in jurisdictions where we have not obtained patent protection to develop their own products, any of which could compete with our product candidates.
Inventions, and the intellectual property rights covering them, that are discovered under research, material transfer or other such collaboration agreements
may become solely owned by us in some cases, jointly owned by us and the other party to such agreements in some cases, and may become the exclusive property of other party to such agreements in other cases. Under some circumstances, it may be
difficult to determine which party owns a particular invention, or whether it is jointly owned, and disputes could arise regarding ownership of those inventions. These disputes could be costly and time consuming and an unfavorable outcome could have
a significant adverse effect on our business if we were not able to protect or license rights to these inventions. In addition, our research collaborators may have contractual rights that permit them to use our proprietary compounds for
specific studies, and publish our data and other proprietary information, subject to our prior review. Unauthorized uses of our proprietary compounds by such research collaborators, and publications by our research collaborators and scientific
advisors containing such information, either with our permission or in contravention of the terms of their agreements with us, may limit or foreclose our ability to obtain patent protection for our product candidates or protect our proprietary
information, which could materially harm our business, prospects, financial condition and results of operations.
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In addition, issued patents and pending patent applications require regular maintenance and payment of taxes,
fees and/or annuities in several stages over the lifetime of the patents and patent applications. We employ an outside firm and rely on our outside counsel to pay these fees when they are due. We, the outside firm or our outside counsel
could inadvertently abandon a patent or patent application due to
non-payment
of such taxes, fees and/or annuities, or as a result of a failure to comply with filing deadlines or other requirements of the
prosecution process, resulting in the loss of protection of certain intellectual property rights in a certain country. Alternatively, we, our collaborators, or our patent counsel may take action resulting in a patent or patent application becoming
abandoned which may not be able to be reinstated, or if reinstated, may result in a reduction of patent term. Failure to maintain our portfolio may result in loss of rights that may adversely impact our intellectual property rights, for example
by rendering issued patents lapsed, void, or unenforceable, prematurely terminating pending applications, or reducing patent term.
In addition to the
protection afforded by patents, we rely on trade secret protection and confidentiality agreements to protect proprietary
know-how
that is not patentable, inventions for which patents are difficult to enforce
and any other elements of our discovery platform and drug development processes that involve proprietary
know-how,
information or technology that is not covered by patents or not amenable to patent protection.
Although we require all of our employees and certain consultants and advisors to assign inventions to us, and all of our employees, consultants, advisors and any third parties who have access to our proprietary
know-how,
information or technology to enter into confidentiality agreements, our trade secrets and other proprietary information may be disclosed or competitors may otherwise gain access to such information
or independently develop substantially equivalent information. Enforcing a claim that a party illegally disclosed or misappropriated a trade secret is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition,
courts outside the United States are sometimes less willing to protect trade secrets. Moreover, if our competitors independently develop equivalent knowledge, methods or
know-how,
it will be more difficult or
impossible for us to enforce our rights and our business could be materially harmed. Any disclosure to or misappropriation by third parties of our trade secret or other confidential information could enable competitors to quickly duplicate or
surpass our technological achievements, thus eroding any competitive advantage we may derive from this information.
Further, the laws of some foreign
countries do not protect proprietary rights to the same extent or in the same manner as the laws of the United States. As a result, we may encounter significant difficulty in protecting and defending our intellectual property both in the United
States and abroad. If we are unable to effectively utilize our intellectual property to protect our products, we may not be able to establish or maintain the competitive advantage that we believe is provided by such intellectual property, which
could materially and adversely affect our market position and business and operational results.
Claims that we infringe the intellectual property
rights of others may prevent or delay our drug development efforts.
Our research, development and commercialization activities, as well as any
product candidates or products resulting from those activities, may infringe or be alleged to infringe a patent or other form of intellectual property under which we do not hold a license or other rights. Third parties may assert that we are
employing their proprietary technology without authorization. There may be third-party patents of which we are currently unaware with claims that cover the composition of matter, use or manufacture of our product candidates or the practice of our
related methods. Because patent applications can take many years to issue, there may be currently pending patent applications that may later result in issued patents that our product candidates, their use, and manufacture or our related methods may
infringe. In addition, third parties may obtain patents in the future and claim that our product candidates, their use, and manufacture or our related methods infringe one or more claims of these patents. If our activities or product candidates are
determined to infringe the patents or other intellectual property rights of third parties, the holders of such intellectual property rights may be able to block our ability to develop and commercialize such product candidates or practice our methods
unless we obtain a license under the intellectual property rights or until any applicable patents expire or are determined to be invalid or unenforceable.
Defense of any intellectual property infringement claims against us, regardless of their merit, would involve substantial litigation expense and would be a
significant diversion of employee resources and distract management from our business. In the event of a successful claim of infringement against us, we may have to pay substantial damages, obtain one or more licenses from third parties, limit our
business to avoid the infringing activities, pay royalties and/or redesign our infringing product candidates or methods, any or all of which may be impossible or require substantial time and monetary expenditure. Although we carry general
liability insurance, our insurance does not cover potential claims of this type. The occurrence of any of the above events could prevent us from continuing to develop and commercialize one or more of our product candidates or practice our
related methods, and our business could materially suffer.
Many of our collaboration agreements are complex and may call for licensing or cross-licensing
of potentially blocking patents,
know-how
or intellectual property. Due to the potential overlap of data,
know-how
and intellectual property rights there can be no
assurance that one of our collaborators will not dispute our right to send data or
know-how
or other intellectual property rights to third parties and this may potentially lead to liability or termination of a
program or litigation. There are no assurances that the actions of our
44
collaborators would not lead to disputes or cause us to default with other collaborators. We cannot be certain that a collaborator will not challenge the validity of licensed patents.
We may desire, or be forced, to seek additional licenses to use intellectual property owned by third parties, and such licenses may not be available on
commercially reasonable terms or at all.
A third party may hold intellectual property, including patent rights, that are important or necessary
to the development or commercialization of our product candidates or to practice our related methods, in which case we would need to obtain a license from that third party or develop a different method relating to the product candidate that does not
infringe the applicable intellectual property, which may not be possible. Additionally, we may identify product candidates that we believe are promising and whose composition of matter, use or manufacture are covered by the intellectual property
rights of third parties. In such a case, we may desire to seek a license to pursue the development and commercialization of those product candidates. Any license that we may desire to obtain, or that we may be forced to pursue, may not be available
when needed on commercially reasonable terms, or at all. Any inability to secure a license that we need or desire could have a material adverse effect on our business, financial condition and prospects.
The patent protection covering some of our product candidates may be dependent on third parties, who may not effectively maintain that protection.
While we expect that we will generally seek to gain the right to fully prosecute and maintain any issued patents and pending patent applications
covering product candidates we may
in-license
from third-party owners, there may be instances when the prosecution and maintenance of issued patents and pending patent applications that cover our product
candidates remain controlled by our licensors. For instance, NMS has retained certain patent prosecution and maintenance rights under our license agreements relating to our entrectinib program, Daiichi Sankyo holds certain patent prosecution and
maintenance rights under our license agreement relating to our
RXDX-105
and
RXDX-106
programs, and Lilly holds certain patent prosecution and maintenance rights under
our license agreement relating to our taladegib programs. If any of our current or future licensing partners that retain the right to prosecute and maintain patents and pending patent applications covering the product candidates we license from them
fail to appropriately prosecute and maintain that patent protection, we may not be able to prevent competitors from developing and selling competing products or practicing competing methods, and our ability to generate revenue from any
commercialization of the affected product candidates may suffer.
We may be involved in lawsuits or administrative proceedings to protect or enforce
our patents or the patents of our licensors, which could be expensive, time-consuming and unsuccessful.
Competitors may infringe our patents or
the patents of our current or potential licensors. We cannot predict if, when or where a third party may infringe one or more of our issued patents. To attempt to stop infringement or unauthorized use, we may need to enforce one or more of our
patents, which can be expensive and time-consuming, a significant diversion of employee resources, and distract our management. There is no assurance such action will ultimately be successful in halting third party infringing activities, for
example, through a permanent injunction, or that we would be fully or even partially financially compensated for any harm to our business caused by such third party infringement. Even if such action were initially successful, it could be overturned
upon appeal. Even if we are successful in proving in a court of law that a third party is infringing one or more of our issued patents we may be forced to enter into a license or other agreement with the infringing third party on terms less
commercially acceptable to us than if the license or agreement were negotiated under conditions between those of a willing licensee and a willing licensor. We may not become aware of a third party infringer within legal timeframes that would enable
us to seek adequate compensation, or at all, thereby possibly losing the ability to be compensated for any harm to our business. Such a third-party may be operating in a foreign country where the infringer is difficult to locate, where we do not
have issued patents and/or the patent laws may be more difficult to enforce. If we pursue any litigation, a court may decide that a patent of ours or our licensors is not of sufficient breath, is invalid, or is unenforceable, or may refuse to
stop the other party from using the relevant technology on the grounds that our patents do not cover the technology in question. Further, the legal systems of certain countries, particularly certain developing countries, do not favor the enforcement
of patents, which could reduce the likelihood of success of any infringement proceeding we pursue in any such jurisdiction. An adverse result in any patent litigation could put one or more of our patents at risk of being invalidated, held
unenforceable, or interpreted narrowly and could put our pending patent applications at risk of not issuing, which could limit our ability to exclude competitors from directly competing with us in the applicable jurisdictions.
Certain administrative proceedings may be provoked by third parties before the USPTO and certain foreign patent offices, such as interference proceedings,
opposition proceedings,
re-examination
proceedings,
inter partes
review, post-grant review, derivation proceedings and
pre-grant
submissions, in which third
parties may challenge the validity or breadth of claims contained in our patents or those of our licensors. An adverse result in any such administrative proceeding could put one or more of our patents at risk of being
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canceled or invalidated or interpreted narrowly and could put our pending patent applications at risk of not issuing, which could limit our ability to exclude competitors from directly competing
with us in the applicable jurisdictions.
Interference proceedings provoked by third parties or brought by us or the USPTO may be necessary to determine
the priority of inventions with respect to our patents or patent applications or those of our licensors. Derivation proceedings may be brought by us or a third party to determine whether a patent or application was filed by the true inventor. An
unfavorable outcome in an interference or derivation proceeding could require us to cease using the related technology or to attempt to license rights to use it from the prevailing party. Our business could be harmed if the prevailing party does not
offer us a license on commercially reasonable terms, or at all. Litigation, interference, or derivation proceedings may have undesirable outcomes and, even if successful, may result in substantial costs, be a significant diversion of employee
resources, and distract our management.
Risks Related to Managing Any Growth We May Experience
We will need to grow the size of our organization, and we may experience difficulties in managing any growth we may achieve.
As of February 28, 2017, we had 112 employees, 108 of whom were full-time and four of whom were part-time employees. As our development and
commercialization plans and strategies develop, we expect to need additional research, development, managerial, operational, sales, marketing, financial, accounting, legal and other resources. We expect future growth to impose significant added
responsibilities on members of management, particularly as we continue to expand our ongoing entrectinib and other development programs including:
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effectively managing our clinical trials and submissions to regulatory authorities for marketing approvals;
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effectively managing our preclinical development efforts;
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identifying, recruiting, maintaining, motivating and integrating additional employees;
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establishing relationships with third parties essential to our business and ensuring compliance with our contractual obligations to such third parties;
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developing and managing new segments of our internal business, including any sales, marketing and commercial operations functions we may elect to establish;
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maintaining our compliance with public company reporting and other obligations, including establishing and maintaining effective internal control over financial reporting and disclosure controls and procedures; and
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improving our managerial, development, operational and finance systems. We may not be able to accomplish any of those tasks, and our failure to do so could prevent us from effectively managing future growth, if any, and
successfully growing our company.
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We may in the future be subject, directly or indirectly, to federal and state healthcare fraud and
abuse laws, false claims laws, physician payments transparency and health information privacy and security laws. If we are unable to comply with any such laws, we could face substantial penalties.
If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our operations will be directly, or
indirectly through our customers, subject to various federal and state fraud and abuse laws, including, without limitation, anti-kickback and false claims statutes. These laws may impact, among other things, any sales, marketing and education
programs we may develop in the future and the manner in which we implement any of those programs, and include the following:
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the federal Anti-Kickback Statute, which prohibits, among other things, persons from knowingly and willfully soliciting, receiving, offering or paying remuneration, directly or indirectly, in exchange for or to induce
either the referral of an individual for, or the purchase, order or recommendation of, any good or service for which payment may be made under federal healthcare programs, such as the Medicare and Medicaid programs. A person or entity does not need
to have actual knowledge of the federal Anti-Kickback Statute or specific intent to violate it to have committed a violation; in addition, the government may assert that a claim including items or services resulting from a violation of the federal
Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act;
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federal false claims laws which prohibit, among other things, individuals or entities from knowingly presenting, or causing to be presented, claims for payment from Medicare, Medicaid or other federal third-party payers
that are false or fraudulent;
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federal criminal laws that prohibit executing a scheme to defraud any federal healthcare benefit program or making false statements relating to healthcare matters. Similar to the federal Anti-Kickback Statute, a person
or entity does not need to have actual knowledge of the statute or specific intent to violate it to have committed a violation;
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the federal Health Insurance Portability and Accountability Act of 1996, as amended by the Health Information Technology for Economic and Clinical Health Act, which governs the conduct of certain electronic healthcare
transactions and protects the security and privacy of protected health information;
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the federal Physician Payment Sunshine Act, which requires manufacturers of drugs, devices, biologics and medical supplies for which payment is available under Medicare, Medicaid or the Childrens Health Insurance
Program (with certain exceptions) to report annually to CMS information related to payments or other transfers of value made to physicians (defined to include doctors, dentists, optometrists, podiatrists and chiropractors) and teaching
hospitals, and requires applicable manufacturers and group purchasing organizations to report annually to the government ownership and investment interests held by the physicians described above and their immediate family members and payments or
other transfers of value to such physician owners. Manufacturers are required to submit reports to the government by the 90th day of each calendar year;
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analogous state law equivalents of each of the above federal laws, such as anti-kickback and false claims laws which may apply to items or services reimbursed by any third-party payer, including commercial insurers;
state laws that require pharmaceutical companies to comply with the industrys voluntary compliance guidelines and the applicable compliance guidance promulgated by the federal government or otherwise restrict payments that may be made to
healthcare providers and other potential referral sources; state laws that require drug manufacturers to report information related to payments and other transfers of value to physicians and other healthcare providers or marketing expenditures and
pricing information; and state laws governing the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways and may not have the same effect, thus complicating compliance efforts.
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The risk of our being found in violation of these laws is increased by the fact that many of them have not been fully interpreted by the
regulatory authorities or the courts, and their provisions are open to a variety of interpretations. Because of the breadth of these laws and the narrowness of the statutory exceptions and safe harbors available under such laws, it is possible that
some of our business activities, including our relationships with physicians and other healthcare providers, some of whom will recommend, purchase and/or prescribe our products, could be subject to challenge under one or more of such laws.
If our operations are found to be in violation of any of those laws or any other governmental regulations that may apply to us in connection with marketing
and sales of any product candidates that may gain regulatory approval, we may be subject to penalties, including civil and criminal penalties, damages, fines, exclusion from government healthcare programs and/or the curtailment or restructuring of
our operations, any of which could adversely affect our ability to operate our business and our financial condition.
If we fail to comply with
environmental, health and safety laws and regulations that apply to us, we could become subject to fines or penalties or incur costs that could harm our business.
We are subject to numerous environmental, health and safety laws and regulations, including those governing laboratory procedures and the handling, use,
storage, treatment and disposal of hazardous materials and wastes. Our operations involve the use of hazardous and flammable materials, including chemicals and biological materials. Our operations also produce hazardous waste products. We generally
contract with third parties for the disposal of any hazardous materials we use and wastes we produce. The use of these materials in our business could result in contamination or injury, which could cause damage for which we may be responsible but
may not have sufficient resources to pay. We also could incur significant costs associated with civil or criminal fines and penalties for failure to comply with these laws and regulations, which we may not be able to afford.
Although we maintain workers compensation insurance to cover us for costs and expenses we may incur due to injuries to our employees resulting from the
use of hazardous materials, this insurance may not provide adequate coverage against potential liabilities. We do not maintain insurance for environmental liability or toxic tort claims that may be asserted against us in connection with our storage
or disposal of biological, hazardous or radioactive materials.
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In addition, we may incur substantial costs in order to comply with current or future environmental, health and
safety laws and regulations. These current or future laws and regulations may impair our research, development or production efforts or impact the research activities we pursue, particularly with respect to research involving human subjects or
animal testing. Our failure to comply with these laws and regulations also may result in substantial fines, penalties or other sanctions, which could cause our financial condition to suffer.
Our ability to utilize our net operating loss carryforwards and certain other tax attributes may be limited.
We have incurred substantial losses during our history and do not expect to become profitable in the foreseeable future and may never achieve profitability.
To the extent we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. Under Section 382 and 383 of the Internal Revenue Code of 1986, as amended, if a
corporation undergoes an ownership change (generally defined as a cumulative change in equity ownership by 5% shareholders that exceeds 50 percentage points over a rolling three-year period), the corporations
ability to use its
pre-ownership
change net operating loss carryforwards and other
pre-ownership
change tax attributes to offset its post-ownership change income and
taxes may be limited. We may have experienced an ownership change as a result of our October 31, 2013 merger transaction, our November 2013, March 2014, March 2015, June 2015 and May 2016 common stock offerings, our
March 2015 transaction with Teva and our November 2015 transaction with Lilly, and we may experience one or more ownership changes as a result of future transactions in our stock. We have not performed, nor do we have any current plan to
perform, a formal study of such potential limitations on the use of our net operating loss carryforwards and other tax assets. As a result, we may be limited in our ability to use our net operating loss carryforwards and other tax assets to reduce
taxes owed on the net taxable income that we earn. As of December 31, 2016, we believe we had federal and state net operating loss carryforwards of approximately $192.3 million and $138.8 million, respectively. These net operating
loss carryforwards could be limited if the merger, the common stock offerings or the Teva and Lilly transactions resulted in an ownership change, or if we experience any other ownership change, which could potentially result in increased future tax
liability to us. In addition, we are reporting an uncertain tax position in respect of approximately $83.3 million of our California state net operating loss carryforward, which carryforward would be disallowed unless a recent California
Supreme Court decision on apportionment is overturned.
Our business and operations would suffer in the event of system failures.
Despite the implementation of security measures, our internal computer systems and those of our contractors and consultants are vulnerable to damage from
computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any such system failure, accident or security breach to date, if such an event were to occur and
cause interruptions in our operations, it could result in a material disruption of our drug development programs. For example, the loss of clinical trial data from completed or ongoing or planned clinical trials could result in delays in our
regulatory approval efforts and we may incur substantial costs to attempt to recover or reproduce the data. If any disruption or security breach resulted in a loss of or damage to our data or applications, or inappropriate disclosure of confidential
or proprietary information, we could incur liability and/or the further development of our product candidates could be delayed.
Our operations are
vulnerable to interruption by natural disasters, power loss, terrorist activity and other events beyond our control, the occurrence of which could materially harm our business.
Businesses located in California have, in the past, been subject to electrical blackouts as a result of a shortage of available electrical power, and any
future blackouts could disrupt our operations. We are vulnerable to a major earthquake, wildfire, flooding, inclement weather and other natural disasters, and we have not undertaken a systematic analysis of the potential consequences to our business
as a result of any such natural disaster and do not have an applicable recovery plan in place. We carry only limited business interruption insurance that would compensate us for actual losses from interruption of our business that may occur, and any
losses or damages incurred by us in excess of insured amounts could cause our business to materially suffer.
Risks Related to Ownership of Our Common
Stock
There may not be a viable trading market for our common stock, which may make it difficult for you to sell your shares.
Our common stock had not been publicly traded on the NASDAQ Capital Market prior to our public offering in March 2014. The trading market for our common
stock on the NASDAQ Capital Market has been limited, and an active trading market for our shares may not be sustained. As a result of these and other factors, you may be unable to sell your shares at a price that is attractive to you, or at all.
Further, an inactive trading market may also impair our ability to raise capital by selling shares of our common stock in the
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future, and may impair our ability to enter into strategic partnerships or acquire companies or products by using shares of our common stock as consideration.
Our share price is volatile and may be influenced by numerous factors, some of which are beyond our control.
The price for our common stock currently is, and is likely to continue to be, highly volatile, and could be subject to wide fluctuations. That price
fluctuation could be in response to various factors, some of which may be beyond our control. These factors are discussed in this Risk Factors section, and elsewhere in this Annual Report on Form
10-K,
as updated by our subsequent filings under the Exchange Act. These factors include, without limitation:
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the product candidates we pursue, and our ability to obtain rights to develop, commercialize and market those product candidates;
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our decision to initiate a clinical trial, not to initiate a clinical trial or to terminate an existing clinical trial or development program;
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actual or anticipated adverse results or delays in our clinical trials;
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our failure to successfully commercialize our product candidates, if approved, either ourselves or through one or more collaborators;
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unanticipated serious safety concerns related to the use of any of our product candidates;
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adverse regulatory decisions;
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additions or departures of key scientific or management personnel;
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changes in laws or regulations applicable to our product candidates, including without limitation clinical trial requirements for approvals;
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disputes or other developments relating to patents and other proprietary rights and our ability to obtain patent and other intellectual property protection for our product candidates;
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our dependence on third parties, including CROs and contract manufacturers, as well as our potential partners that may produce companion diagnostic products or commercialization capabilities;
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failure to meet or exceed any financial guidance or expectations regarding development milestones that we may provide to the public;
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actual or anticipated variations in quarterly operating results, liquidity or other indicators of our financial condition;
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failure to meet or exceed the estimates and projections of the investment community;
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overall performance of the equity markets and other factors that may be unrelated to our operating performance or the operating performance of our competitors, including changes in market valuations of similar
companies;
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conditions or trends in the biotechnology and biopharmaceutical industries;
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announcements of achievement of development or regulatory milestones, or the introduction of new products offered by us or our competitors;
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announcements of significant acquisitions, strategic partnerships, joint ventures or capital commitments by us or our competitors;
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our ability to maintain an adequate rate of growth and manage such growth;
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issuances of debt or equity securities;
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sales of our common stock by us or our stockholders in the future, or the perception that such sales could occur;
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trading volume of our common stock;
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ineffectiveness of our internal control over financial reporting or disclosure controls and procedures;
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general political and economic conditions;
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effects of natural or
man-made
catastrophic events; and
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other events or factors, many of which are beyond our control.
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In addition, the stock market in general, and
the stocks of
small-cap
biotechnology companies in particular, have experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of these
companies. Broad market and industry factors may negatively affect the market price of our common stock, regardless of our actual operating performance. The realization of any of the above risks or any of a broad range of other risks could have a
dramatic and material adverse impact on the market price of our common stock.
Sales of a substantial number of shares of our common stock in the
public market, or the perception that such sales could occur, could cause our stock price to fall.
If our existing stockholders sell, or indicate
an intention to sell, substantial amounts of our common stock in the public market, the trading price of our common stock could decline. As of February 28, 2017, a total of 41,700,063 shares of our common stock were outstanding. Of those
shares, approximately 37,389,300 were freely tradable, without restriction, in the public market. Such shares represented approximately 90% of our outstanding shares of common stock as of that date. Any sales of those shares or any perception in the
market that such sales may occur could cause the trading price of our common stock to decline.
In addition, shares of common stock that are either
subject to outstanding options or reserved for future issuance under our equity incentive plans will be eligible for sale in the public market to the extent permitted by the provisions of various vesting schedules, Rule 144 and Rule 701
under the Securities Act of 1933, as amended, or the Securities Act, our effective Registration Statements on
Form S-8
and any future registration of such shares under the Securities Act. If these
additional shares of common stock are sold, or if it is perceived that they will be sold, in the public market, the trading price of our common stock could decline.
The resale of shares covered by our effective resale registration statements could adversely affect the market price of our common stock in the public
market, which result could in turn negatively affect our ability to raise additional equity capital.
The sale, or availability for sale, of our
common stock in the public market may adversely affect the prevailing market price of our common stock and may impair our ability to raise additional equity capital. We filed registration statements with the SEC to register the resale of all of the
3,000,000 shares of our common stock issued and sold to Teva in March 2015, and all of the 2,713,000 shares of our common stock issued and sold to Lilly in November 2015. Both of these registration statements have been declared effective
by the SEC. The resale registration statements permit the resale of these shares at any time without restriction. The resale of a substantial number of shares of our common stock in the public market could adversely affect the market price for
our common stock and make it more difficult for you to sell shares of our common stock at times and prices that you feel are appropriate. Furthermore, because there are a large number of shares registered pursuant to the resale registration
statements, the selling stockholders named in such registration statements may continue to offer shares covered by the resale registration statements for a significant period of time, the precise duration of which cannot be predicted. Accordingly,
the adverse market and price pressures resulting from an offering pursuant to the resale registration statements may continue for an extended period of time, and continued negative pressure on the market price of our common stock could have a
material adverse effect on our ability to raise additional equity capital.
Future sales and issuances of our common stock or rights to purchase
common stock, including pursuant to our equity incentive plans or otherwise, could result in dilution to the percentage ownership of our stockholders and could cause our stock price to fall.
We expect that significant additional capital will be needed in the future to continue our planned operations. To raise capital, we may sell common stock,
convertible securities or other equity securities in one or more transactions at prices and in a manner we determine from time to time. If we sell common stock, convertible securities or other equity securities, previous investors may be materially
diluted. Additionally, new investors could gain rights, preferences and privileges senior to those of existing holders of our common
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stock. Further, any future sales of our common stock by us or resales of our common stock by our existing stockholders could cause the market price of our common stock to decline. In addition,
any future grants of options, warrants or other securities exercisable or convertible into our common stock, or the exercise or conversion of such shares, and any sales of such shares in the market, could have an adverse effect on the market price
of our common stock.
We incur significant costs associated with, and our management is required to devote substantial time and effort to,
compliance with public company reporting and other requirements.
As a public company listed on the NASDAQ Capital Market, we incur significant
legal, accounting and other expenses that we did not incur as a private company. In addition, Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, as well as the rules and regulations of the SEC and the NASDAQ Capital Market, impose numerous
requirements on public companies, including requirements relating to effective disclosure and financial controls and changes in corporate governance practices, with which we need to comply. Further, since we are subject to the Exchange Act, we are
required to, among other things, file annual, quarterly and current reports with respect to our business and operating results. Our management and other personnel will need to devote substantial time to operations as a public company and compliance
with applicable laws and regulations, and our efforts and initiatives to comply with those requirements could be expensive and may include hiring additional legal, financial reporting and other finance and accounting staff and engaging consultants
to assist in designing and implementing such procedures. If these requirements divert the attention of our management and personnel from other business concerns, they could have a material adverse effect on our business, financial condition and
results of operations. The increased costs will decrease our net income or increase our net loss and may require us to reduce costs in other areas of our business or increase the prices of our products or services. Further, stockholder activism, the
current political environment and the current high level of government intervention and regulatory reform may lead to substantial new regulations and disclosure obligations, which may lead to additional compliance costs and impact the manner in
which we operate our business in ways we cannot currently anticipate.
If we fail to maintain proper and effective internal controls, our ability to
produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors views of us.
We are required to comply with certain aspects of Section 404 of the Sarbanes-Oxley Act. Section 404 of the Sarbanes-Oxley Act requires public
companies to, among other things, conduct an annual review and evaluation of their internal controls over financial reporting. Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce
accurate financial statements on a timely basis is a costly and time-consuming effort that will require frequent evaluation. Our failure to maintain the effectiveness of our internal controls in accordance with the requirements of the Sarbanes-Oxley
Act could have a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our common stock. In addition, if our efforts
to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies, regulatory authorities may initiate legal proceedings against us and our business may be harmed.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, our stock price and any
trading volume could decline.
The trading market for our common stock depends in part on the research and reports that securities or industry
analysts publish about us or our business. If one or more of securities or industry analysts covering our business downgrade our stock or publish inaccurate or unfavorable research about our business, our stock price would likely decline. If one or
more of these analysts cease coverage of our company or fail to publish reports on us regularly, demand for our stock could decrease, which might cause our stock price and trading volume to decline.
We are an emerging growth company, allowing us to take advantage of certain reduced disclosure obligations as a public reporting company that may make
our common stock less attractive to investors. Additionally, as an emerging growth company, we have elected to delay the adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made
applicable to private companies.
We are an emerging growth company under the Jumpstart Our Business Startups Act, or the JOBS Act. Accordingly,
we are eligible to take advantage of certain extended accounting standards and exemptions from various reporting requirements that are not available to public reporting companies that do not qualify for this classification. For instance, we are not
required to hold a nonbinding advisory stockholder vote on executive compensation or any golden parachute payments not previously approved by stockholders; we are not required to comply with the requirement of auditor attestation of
managements assessment of internal control over financial reporting, which is required for some other public reporting companies by Section 404 of the Sarbanes-Oxley Act of 2002; and we are eligible for reduced financial statement
disclosure in any registration statements under the Securities Act or reports under the
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Exchange Act that we may file. For as long as we continue to be an emerging growth company, which we anticipate will be for the foreseeable future, we expect that we will take advantage of the
reduced disclosure obligations available to us as a result of this classification. As a result, our publicly available disclosure may not be as robust or comprehensive as that of other public reporting companies that do not qualify for this
classification.
Further, as an emerging growth company, we can elect to delay the adoption of certain accounting standards until those standards would
otherwise apply to private companies. We have irrevocably elected to take advantage of this extended transition period. Since we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such
standards is required for other public companies, our financial statements may not be comparable to the financial statements of other public companies that comply with the effective dates of those accounting standards.
Our principal stockholders and management own a significant percentage of our stock and will be able to exert significant control over matters subject
to stockholder approval.
Certain of our executive officers, directors and large stockholders own a significant percentage of our outstanding
capital stock. As of February 28, 2017, our executive officers, directors, holders of 5% or more of our capital stock and their respective affiliates beneficially owned approximately 54% of our outstanding voting stock (which includes shares
they had the right to acquire within 60 days). Accordingly, our directors and executive officers and large stockholders have significant influence over our affairs due to their substantial ownership coupled with the positions of some of these
stockholders on our management team, and have substantial voting power to approve matters requiring the approval of our stockholders. For example, these stockholders may be able to control elections of directors, amendments of our organizational
documents, or approval of any merger, sale of assets or other major corporate transaction. This concentration of ownership in our Board of Directors and management team and certain other large stockholders may prevent or discourage unsolicited
acquisition proposals or offers for our common stock that some of our stockholders may believe are in their best interest.
If we issue additional
shares of our capital stock in the future, our existing stockholders will be diluted.
Our second amended and restated certificate of
incorporation authorizes the issuance of up to 150,000,000 shares of our common stock and up to 10,000,000 shares of preferred stock with the rights, preferences and privileges that our board of directors may determine from time to time.
In addition to capital raising activities such as public and private placements of our common stock, other possible business and financial uses for our authorized capital stock include, without limitation, future stock splits, acquiring other
companies, businesses or products in exchange for shares of our capital stock, issuing shares of our capital stock to partners or other collaborators in connection with strategic alliances, attracting and retaining employees by the issuance of
additional securities under our equity compensation plans, or other transactions and corporate purposes that our board of directors deems are in the best interest of our company and our stockholders. Additionally, shares of our capital stock could
be used for anti-takeover purposes or to delay or prevent changes in control or our management. Any future issuances of shares of our capital stock may not be made on favorable terms or at all, they may not enhance stockholder value, they may have
rights, preferences and privileges that are superior to those of our common stock, and they may have an adverse effect on our business or the trading price of our common stock. The issuance of any additional shares of our common stock will reduce
the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common stock. Additionally, any such issuance will reduce the proportionate ownership and voting power of all of our current
stockholders.
Anti-takeover provisions under our charter documents and Delaware law could delay or prevent a change of control which could limit
the market price of our common stock and may prevent or frustrate attempts by our stockholders to replace or remove our current management.
Our
second amended and restated certificate of incorporation and amended and restated bylaws contain provisions that could delay or prevent a change of control of our company or changes in our board of directors that our stockholders might consider
favorable. Some of these provisions include:
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a board of directors divided into three classes serving staggered three-year terms, such that not all members of the board will be elected at one time;
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a prohibition on stockholder action through written consent, which requires that all stockholder actions be taken at a meeting of our stockholders;
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a requirement that special meetings of stockholders be called only by the chairman of the board of directors, the chief executive officer, the president or by a majority of the total number of authorized directors;
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advance notice requirements for stockholder proposals and nominations for election to our board of directors;
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a requirement that no member of our board of directors may be removed from office by our stockholders except for cause and, in addition to any other vote required by law, upon the approval of not less than
two-thirds
of all outstanding shares of our voting stock then entitled to vote in the election of directors;
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a requirement of approval of not less than
two-thirds
of all outstanding shares of our voting stock to amend any bylaws by stockholder action or to amend specific provisions of
our second amended and restated certificate of incorporation; and
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the authority of the board of directors to issue preferred stock on terms determined by the board of directors without stockholder approval and which preferred stock may include rights superior to the rights of the
holders of common stock.
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In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the
Delaware General Corporate Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These anti-takeover provisions and other provisions in our second amended and restated certificate
of incorporation and amended and restated bylaws could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by the then-current board of directors and could
also delay or impede a merger, tender offer or proxy contest involving our company. These provisions could also discourage proxy contests and make it more difficult for you and other stockholders to elect directors of your choosing or cause us to
take other corporate actions you desire. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our common stock to decline.
We do not intend to pay cash dividends on our capital stock in the foreseeable future.
Other than a $3.50 per share cash dividend we declared and paid in connection with and prior to the closing of the October 31, 2013 merger in which we
initially became the wholly owned subsidiary of the company previously known as Infinity Oil & Gas Company, we have never declared or paid any dividends on our common stock and do not anticipate paying any dividends in the foreseeable
future. In addition, our ability to pay cash dividends is currently prohibited by the terms of our loan agreement with SVB and Oxford. Any future payment of cash dividends would depend on our financial condition, contractual restrictions, solvency
tests imposed by applicable corporate laws, our results of operations, our anticipated cash requirements and other factors and will be at the discretion of our board of directors. Our stockholders should not expect that we will ever pay cash or
other dividends on our outstanding capital stock.
The results of the United Kingdoms referendum on withdrawal from the European Union, or EU,
may have a negative effect on global economic conditions, financial markets and our business.
On June 23, 2016, a majority of voters in the
United Kingdom elected to withdraw from the EU in a national referendum (commonly referred to as Brexit). The referendum was advisory, and the terms of any withdrawal are subject to a negotiation period that could last at least two years after the
government of the United Kingdom formally initiates a withdrawal process. Nevertheless, the referendum has created significant uncertainty about the future relationship between the United Kingdom and the EU, and has given rise to calls for certain
regions within the United Kingdom to preserve their place in the EU by separating from the United Kingdom, as well as for the governments of other EU member states to consider withdrawal.
These developments, or the perception that any of them could occur, have had and may continue to have a material adverse effect on global economic conditions
and the stability of global financial markets, and could significantly reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Asset valuations, currency exchange rates and credit
ratings may be especially subject to increased market volatility. Lack of clarity about future U.K. laws and regulations as the United Kingdom determines which EU laws to replace or replicate in the event of a withdrawal, including financial laws
and regulations, tax and free trade agreements, intellectual property rights, supply chain logistics, environmental, health and safety laws and regulations, immigration laws and employment laws, could decrease foreign direct investment in the United
Kingdom, increase costs and depress economic activity. If the United Kingdom and the EU are unable to negotiate acceptable withdrawal terms or if other EU member states pursue withdrawal, barrier-free access between the United Kingdom and other EU
member states or among the European economic area overall could be diminished or eliminated. In addition, we expect that Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines
which EU laws to replicate or replace. If the United Kingdom were to significantly alter its regulations affecting the biotechnology or pharmaceutical industries, we could face significant new costs. It may also be time-consuming and expensive for
us to alter our internal operations in order to comply with new regulations. Altered regulations could also add time and expense to the process by which our product candidates receive regulatory
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approval in the United Kingdom and the EU. Similarly, it is unclear at this time what Brexits impact will have on our intellectual property rights and the process for obtaining and
defending such rights. It is possible that certain intellectual property rights, such as trademarks, granted by the EU will cease being enforceable in the United Kingdom absent special arrangements to the contrary. With regard to existing patent
rights, the effect of Brexit should be minimal considering enforceable patent rights are specific to the United Kingdom, whether arising out of the European Patent Office or directly through the U.K. patent office. Any of these factors could have a
material adverse effect on our business, financial condition and results of operations and affect our strategy in the U.K. pharmaceutical market.
We may have material liabilities that were not discovered before, and have not been discovered since, the closing of our October 2013 merger.
As a result of the October 31, 2013 merger in which we initially became the wholly owned subsidiary of the company previously known as
Infinity Oil & Gas Company, the former business plan and management of such company were abandoned and replaced with our business and management team. Prior to the merger, there were no relationships or other connections among the
businesses or individuals associated with those two entities. As a result, we may have material liabilities based on activities before the merger that have not been discovered or asserted. We could experience losses as a result of any such
undisclosed liabilities that are discovered in the future, which could materially harm our business and financial condition. Although the merger agreement entered into in connection with the merger contains customary representations and warranties
from the former Infinity Oil & Gas Company concerning its assets, liabilities, financial condition and affairs, there may be limited or no recourse against that companys
pre-merger
stockholders
or principals in the event those representations prove to be untrue. As a result, our current and future stockholders will bear some, or all, of the risks relating to any such unknown or undisclosed liabilities.
We may be exposed to additional risks as a result of going public by means of a reverse merger transaction.
We may be exposed to additional risks because we became a public company through a reverse merger transaction. There has been increased focus in
recent years by government agencies on transactions such as this reverse merger transaction, and we may be subject to increased scrutiny and/or restrictions by the SEC and other government agencies and holders of our securities as a result of the
completion of that transaction. Additionally, our going public by means of a reverse merger transaction may make it more difficult for us to obtain coverage from securities analysts of major brokerage firms because there may be little
incentive to those brokerage firms to recommend the purchase of our common stock. The occurrence of any such event could cause our business or stock price to suffer.